The Englishman led Canada to the 2022 World Cup, where they exited after three losses in the group stage, after previously serving as coach of the Canadian women's team that won bronze medals at the 2012 and 2016 Olympics.
"John's contribution to the game in Canada is unmatched," Canada Soccer President Charmaine Crooks said in a news release.
"We would like to thank John for his immense contribution to the game in Canada and wish him the very best in his new role at Toronto FC."
Canada Soccer said Mauro Biello, who has been an assistant under Herdman since March 2018, will serve as interim head coach and that Herdman will work with him through September to ensure a seamless transition.
Herdman takes over for a Toronto side that fired head coach Bob Bradley in June and sit at the bottom of the Eastern Conference with 19 points through 26 games.
"Personally, it's the right time for me to step into a new challenge in my career, and the structure of a club environment is a context I've aspired to operate in," said Herdman.
"Having access to connect and collaborate with the staff and players daily allows for a different depth of development and connection, both on and off the pitch."
After a coaching stint with the New Zealand women's national team, Herdman took over the Canadian women's team in 2011 and guided them to third-place finishes at the 2012 and 2016 Olympics.
In 2018, Canada Soccer handed the job of rebuilding the men's team to Herdman, who led Canada back to the World Cup for just the second time after finishing top of CONCACAF qualifying ahead of regional powerhouses United States and Mexico.
Canada failed to reach the knockout stages but registered two goals and played with a swaggering style and self-belief that showed a sense of belonging.
With expectations higher than ever for the 2026 World Cup, which Canada will co-host with the United States and Mexico, Herdman made clear in February that despite other offers he wanted to be around for the journey.
Herdman's coaching in Toronto will be announced at a later date, the MLS club said.
"John is more than just a coach. He's a great leader and a culture builder," Toronto FC President Bill Manning said in a separate news release.
"We look forward to John having the same positive impact with TFC as he has had with Canada Soccer."
