Waratahs coach quits after tumultuous season
Gibson had a year left on his contract, but opted not to see it out, ending a seven-year involvement with the Super Rugby franchise, including winning the southern hemisphere title in 2014.
Gibson said his decision was in the best interests of the team moving forward.
"It wasn't an easy decision, but one that I think is in the best interest of the team, myself and my family," he said.
"I'm proud to have served as head coach, this is now a wonderful opportunity for someone to bring the next generation of young players through and really own that process for the next three to four years."
Gibson took over as head coach in 2016, following a three-year stint as assistant to now Wallabies coach Michael Cheika.
He was at the helm for more than 60 Super Rugby fixtures and played an integral part, as assistant, in helping the team win the 2014 title.
Gibson led them to the semi-finals in 2018, but this year they struggled and could only finish 12th on the 15-team ladder.
The season started well and they snapped the Crusaders' record 19-match win streak in March, but it hit the skids after that.
Folau became Super Rugby's all-time leading try-scorer with his 60th in a round-eight loss to the Blues in April, but that was his last game before being fired for posting homophobic comments online.
His attacking presence was sorely missed with the Waratahs struggling to find tries.
NSW Rugby chief Andrew Hore said it was "hard to sum up the contribution Daryl has made".
"His leadership of our Super Rugby playing group through some difficult periods has been exceptional, whilst on the field Daryl has overseen and supported the careers of many fantastic players," he said.
"Daryl always understood the bigger picture and NSW Rugby will be forever indebted for the work he's done to grow the game both now and into the future."
The Waratahs will head into the 2020 season not only without Gibson, but senior players including Test trio Sekope Kepu, Nick Phipps and Curtis Rona, who are all heading to London Irish.