Yellen, 71, announced her resignation about three weeks after President Donald Trump nominated Fed Governor Jerome Powell to be her successor, going against a long-standing tradition of presidents reappointing their predecessor's Fed Chair.
"As I prepare to leave the board, I am gratified that the financial system is much stronger than a decade ago, better able to withstand future bouts of instability and continue supporting the economic aspirations of American families and businesses," Yellen said in her resignation letter.
Yellen's resignation presents a fourth spot for Trump to fill on the Fed's seven-person board of governors, where Fed governor Lael Brainard remains the only member appointed by former President Barack Obama.
Trump has already installed Randal Quarles as vice chair of supervision and will now have the opportunity to name a vice chair and three more governors.
Yellen's term as governor is not set to end until Jan. 31, 2024, but she chose to step down early as Powell is poised to take over her role as chair.
"I am confident that my successor as chair, Jerome Powell, is deeply committed to that mission and I will do my utmost to ensure a smooth transition," she said.