Ms Capp, who was first elected mayor of the City of Melbourne in 2018 before being re-elected in 2020, announced on Thursday she would not contest the Victorian local elections in October.
She said she loved her job and the decision to quit had left her with mixed emotions.
"I have given everything to this role," Ms Capp said in a statement.
"As you know, I like to work at full pace, full-time - and I believe that anyone contesting the election must be all-in for a full term.
"I have decided that at 56, having spent my 50s so far at Town Hall, it's time for me to seek new opportunities to propel me into my next decade."
She expects to finish up as lord mayor at the end of June and will work with councillors and the chief executive on an orderly transition plan.
"I will continue to give the job my full commitment right up until my last minute at Town Hall," Ms Capp said.
She said Melbourne council was in dire need of leadership when she was elected mayor, following the resignation of Robert Doyle amid sexual harassment allegations.
"There were significant internal and external issues - including a culture of unacceptable councillor behaviour and delays on major projects, such as the renewal of Queen Victoria Market," Ms Capp said.
"We faced acts of terrorism in the city, followed by the profound challenges of the global pandemic and long lockdowns.
"Despite this, together we have driven the revitalisation of this magnificent city - emerging as Australia's largest city, the world's third most liveable, and the fourth best student city globally."
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