Faulkner, a former teacher from New South Wales, has been in the Senate since 1989. He held several ministerial posts in the previous Labor government in the 1990s, including Veterans Affairs and Defense Science and Personnel.
Rudd said Home Affairs Minister Bob Debus has also decided to step down and does not plan to run for Parliament again in the next election.
The prime minister announced a series of changes, with ministers adding new responsibilities or changing jobs. He said he made the decisions himself and they are final.
2014: The Year in Music [PHOTOS]