In a written statement, Newsom said, "This is not an easy decision, but it is one made with the best intentions for my wife, my daughter, the residents of the city and county of San Francisco and California Democrats."
Political strategist Matthew Littman says Newsom's departure leaves attorney general and former governor Jerry Brown as the Democratic Party's clear front-runner.
"He was the front-runner before he was 20 point ahead of Gavin, which is part of the reason that Gavin pulled, and it's going to be Jerry against Meg Whitman, which is going to be a very competitive race," said Littman.
Democratic Senator Dianne Feinstein may give Brown a run for his money if she decides to enter the race, a decision she says she won't make until early next year.
"There's no reason for her to run for governor. It's too difficult a job for any human being. She's in a great position in the senate. There's no reason why she should take on the governorship right now," explained Littman.
In response to Newsom's announcement, Brown issued his own statement saying: "Mayor Newsom is a talented public official, and I believe he has a bright future. I am sure this was not an easy decision."
Republican billionaire and former eBay chief executive Meg Whitman has the first gubernatorial TV and radio ads on the air, but Littman says being business-savvy is not enough.
"A lot of business is telling people what you want and having them do it; politics is the art of compromise. A great business person does not make you a great politician," said Littman.