Mr Schmidt, 62, will relinquish his role at the next board meeting in January and become a technical adviser to the firm as well as continuing to serve as a director.
Alphabet announced today that Eric Schmidt is stepping down as the company's executive chairman. He served as CEO until 2011, when he transitioned to become executive chairman, allowing co-founder Larry Page to become CEO.
The company said that it plans to appoint a non-executive chairman to replace Schmidt.
"Since 2001, Eric has provided us with business and engineering expertise and a clear vision about the future of technology", Alphabet CEO Larry Page said in a statement.
A company spokesperson declined to answer further questions about Schmidt leaving the chairman role.
Schmidt has been a key figure at Google for some 17 years.
Alphabet, which was formed when Google restructured its operations in 2015, now has more than 70,000 employees worldwide, and owns Google Search, Maps, Ads, Gmail, Android, Chrome, and YouTube.
Schmidt has been spending much his time on science and technology issues, as well as philanthropy, and his new role at Alphabet will help him to expand upon that work.
Google's one-time "adult supervisor" is getting closer to retirement.
The group also owns the Other Bets unit, which includes the Waymo driverless vehicle business and the Project Loon WiFi-enabled weather balloon venture. He steps down with the company firmly in place as the undisputed leader in search and online advertising worldwide.
Forbes, which ranked Schmidt at No. 119 on its list of the world's billionaires, calculates that the outgoing chairman has net worth of $11.1 billion.
Alphabet shares were down less than a percent in after-hours trading at $1,070.85.
His philanthropic endeavors include the Schmidt Family Foundation established with his wife and focus on challenges such as climate change and protecting the environment.