Alvarez said, "seven orthopedic surgeries and years of chronic pain culminating in two total knee replacements in the past six months have made me realize it's time to move on."
McDonald's said Alvarez, 55, would retire at the end of the year from his COO position and that he would also retire from the company's board of directors.
"I know this was a difficult decision, but it was the right one for Ralph and his family," Chief Executive Officer Jim Skinner said. "On behalf of the entire McDonald's system, I want to commend Ralph for his many contributions to our business."
McDonald's did not name a replacement, but said the company's Area of the World executive team would now report directly to CEO Skinner.