Mr Ellison, one of the world's richest people, will still remain an integral board member however.
The chief executive will be replaced by Mark Hurd and Safra Catz as co-CEOs, with Mr Ellison, 70, stepping into the chairman and chief technology officer roles.
Still an influential position, it means that Mr Ellison will head up the hardware and software engineering units.
In a statement, the board president of Oracle, Michael Boskin, said:
"Larry has made it very clear that he wants to keep working full time and focus his energy on product engineering, technology development and strategy.”
Bright Future Despite the Cloud
Mr Boskin went on to say that the directors were 'thrilled' with the appointment of Mr Hurd and Ms Catz. Exclaiming that both were 'exceptional executives' he said they would oversee a bright future for the firm.
The company confirmed that Mr Hurd will direct the business, sales and service units at Oracle with Ms Catz running finance, legal and the manufacturing units.
The reshuffle at the top of Oracle takes place amid a challenging environment for the firm. With large organisations and corporates shifting to working on the cloud computing platform, a reduction in the number of software licences being sold is being seen.
The timing has left many analysts and commentators confused.
Analyst at FBR Capital Markets, Daniel Ives, said that despite there being widespread speculation that Mr Ellison would leave his CEO role, the timing had left him scratching his head.
Fifth Richest
Mr Ellison has an estimated personal wealth of around $51.3bn, making him the fifth richest man in the world. Funding the company with just $1,200, his is a dazzling success story.
Much of his fortune is tied up in Oracle however, where he has a 25% stake holding.
Somewhat of a character, with many activities in his personal life gaining the attention of the press, he was also a very good friend of the late Steve Jobs.
One notable mention of his personal interests away from work came last year.
Personally financing Oracle Team USA in the 34th America's Cup yacht race, he celebrated the title win as the highly engineered double-hulled yacht clinched victory from Emirates Team New Zealand in what was an exciting final round in San Francisco Bay.
Trailing the New Zealand team by a significant margin, Oracle Team USA stunned everyone by winning the last eight races to come from behind,retaining international sport's oldest trophy.