"It's true, I'm directing Magic Kingdom, not Iron Man 3. I've had a great run with Marvel and wish them the best," Favreau said via Twitter Tuesday.
A source with knowledge of the situation told EW.com the parting was amicable.
"Magic Kingdom" has been described as a fantasy film about what happens at Disneyland after the park closes.
EW.com said "Iron Man 3" is set for release in 2013, but no replacement director has been selected yet.