The former Labor prime minister was appointed as ambassador in 2023 but faced controversy for his previous criticisms of President Donald Trump.
Mr Trump reclaimed the top job in 2024, complicating the government's relationship with the ambassador.
Prime Minister Anthony Albanese announced Dr Rudd would conclude his posting on March 31 to take up the role of global president of the international relations think tank, the Asia Society.
He will also head the society's Centre for China Analysis.
"As prime minister, I have visited the United States on no less than seven occasions, that is because of the productive work that Kevin Rudd has done across the board," Mr Albanese told reporters in Canberra on Tuesday.
Foreign Minister Penny Wong said Dr Rudd had been an excellent ambassador, including by helping Australia secure a critical minerals deal with the US and advancing the AUKUS security pact through which Australia will acquire nuclear-powered submarines from the US.
"Kevin has been an excellent ambassador, we thank him for his tireless contribution to Australia's national interests over the last three years," she said alongside the prime minister.
"He has done what our best ambassadors, developing deep, enduring relationships across the political divide, across successive administrations, and always with a view to advancing Australia's interests."
Mr Albanese denied fractured relationships between the ambassador and the Trump administration, including a terse exchange between Mr Trump and Dr Rudd during a bilateral meeting with the prime minister when his past criticisms were brought up with the president.
"The thing about President Trump is that he looks forward on these issues," Mr Albanese said.
A replacement will be announced at a later date.
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