O'Mahony has been at Munster since 2010 and first captained them in 2011 on his 12th appearance for the club. He became the skipper full-time in 2013.
“I can remember the day I was asked to be captain like it was yesterday," O'Mahony said in a statement.
“From that day to this it’s been an utter privilege and has never been something I’ve taken for granted.
“However, having given a huge amount of thought to it, I think it is the right time to step back from the role to share my experiences and give the same guidance that I received when I took on the role.
"Captaining Munster has been a dream come true for me... what an unbelievable honour it has been and will always continue to be," he added.
O'Mahony captained Munster to their first United Rugby Championship title in 12 years in May.
"You couldn’t pick a better leader than Pete and he has been a fantastic captain for this club," Munster head coach Graham Rowntree said.
"To have someone of Pete’s experience on hand to help us with the succession process is invaluable," he said. "(We) will confirm a new squad captain in due course.