The 60-year-old, who took a break from his duties as coach in February before officially going on medical leave in March, has chosen to prioritise his health and spending time with his family, the third-tier club added.
"I would personally like to commend Tony for informing us of his decision so soon after the end of the season," Birmingham City CEO, Garry Cook, said in a statement.
"It provides us the opportunity to undertake a rigorous search process to identify the right leader to take our club forward and have that person in place before the start of pre-season."
Mowbray joined Birmingham in January after Wayne Rooney was sacked. He won four out of his eight matches while in charge, notably winning consecutive Championship (second tier) games against former clubs Blackburn Rovers and Sunderland.
Birmingham had appointed Gary Rowett as interim manager for the remaining eight games of the season. They were relegated to League One despite a win over Norwich City on the final day.
