Hunter planned to return to Ontario, where he has been coaching the London Knights of the Ontario Hockey League, Capitals General Manager George McPhee said.
Hunter, who was a longtime NHL player, took over coaching in Washington Nov. 28 after the Capitals fired Bruce Boudreau.
The team wound up seventh in the NHL Eastern Conference, eliminated the defending Stanley Cup champion Boston Bruins in seven games in the first round of the playoffs and lost to the New York Rangers in Game 7 of the Eastern Conference semifinals Saturday.
"I guess we're all fathers and sons and husbands first before anything else and if we have our priorities right in this life, family comes first and Dale needs to go home," McPhee said.
Washington, 12-9-1 when Hunter became coach, was 30-23-7 the rest of the season.
Hunter was in his 11th season coaching the Knights when he was asked to take over behind the Capitals' bench. He has the highest winning percentage in OHL history and his teams have won more than 450 games.
Hunter is one of four players to have had their jersey number retired by the Capitals. He played 19 seasons in the NHL, including more than 11 seasons with Washington.
McPhee said he would take some time in the search for a new coach.