Woolf’s decision follows weeks of pressure over her links to former Home Secretary Leon Brittan who is expected to be called to give evidence to the inquiry amid allegations of a political cover-up dating back to the 1980s.
Woolf, a corporate lawyer and Lord Mayor of London, is the second chair of the abuse inquiry to stand down.
Retired High Court judge Lady Elizabeth Butler-Sloss previously stood down in August after admitting that she had failed to take into account a family conflict of interest.
Home Secretary Theresa May said: “It is with regret that I accepted Fiona Woolf’s resignation today.
“I believe she would have carried out her duties with integrity, impartiality and to the highest standard."
May said the inquiry panel will continue with its work while a new chair is appointed.
Matthew Reed, chief executive of The Children’s Society, said: “This critical inquiry has already been delayed twice.
“Now, it is vital that, as steps are taken to find a new chair, its work continues.
“The victims and survivors of child sexual abuse have already waited too long to get the justice they deserve.”
The inquiry will consider whether public bodies and other important institutions have taken their duty of care to protect children from sexual abuse seriously.
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