Mr Joyce said he would step down on Monday as leader of the Nationals, the junior government partner.
He had previously resisted calls to quit amid intense scrutiny over his ministerial conduct.
The scandal has dominated Australian politics for more than two weeks.
He described his decision on Friday as a "circuit-breaker" for his family and new partner, with whom he is expecting a baby in April.
"This current cacophony of issues has to be put aside," he told reporters.
Prime Minister Malcolm Turnbull issued a statement shortly after thanking Mr Joyce for being "a fierce advocate for rural and regional Australia".
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