The Alphabet statement detailed that it expected to replace Schmidt with a non-executive chairman at the January Board meeting.
No reason was provided for the change.
In 2015, when Google established Alphabet as its new corporate parent, Schmidt became executive chairman of the holding company, Larry Page became its CEO, and Sundar Pichai took over as CEO of Google.
The company says it expects to "appoint a non-executive chairman", presumably sometime next year.
He was Google's CEO for ten years until 2011, and the chairman of the board from 2001 to 2004, and later from 2007 to 2001.
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CNBC reports that Schmidt's new role will likely include advising "the company's urban development arm, Sidewalk Labs, its deep learning efforts, and its healthcare spin-offs, Verily and Calico".
"In recent years, I've been spending a lot of my time on science and technology issues, and philanthropy, and I plan to expand that work", Schmidt added.
Larry Page and Sergey Brin founded Google in September 1998.
Alphabet owns Google Search, Maps, Ads, Gmail, Android, Chrome and Youtube and has more than 70,000 employees.
Google's one-time "adult supervisor" is getting closer to retirement.
Alphabet's "Other Bets" businesses include self-driving auto company Waymo, and other technology companies such as Nest, Fiber and Verily. He steps down with the company firmly in place as the undisputed leader in search and online advertising worldwide.
GOOGL closed Thursday's trading session at $1,070.85.