Owner Herb Simon announced the move Wednesday, one day before the NBA draft. He said Bird will stay on for the draft, when the Pacers are scheduled to pick No. 26 overall in the first round.
The 55-year-old Bird was the Pacers coach from 1997-2000, taking the team to its only NBA Finals appearance that final year, before returning to the front office in 2003. He took full control as president of basketball decisions after the 2007-08 season, when Donnie Walsh left to become the New York Knicks' president.
Walsh is returning as the Pacers' president. Kevin Pritchard, the director of player personnel, is being promoted to general manager, replacing David Morway, who resigned Tuesday.
Bird said health issues were among the reasons for his departure.
''I just think it's time,'' he said.
Bird had said just a month ago that he wanted to stay and expressed interest in a three-year deal rather than the annual ''handshake'' agreements he had with Simon. Bird recently was named the NBA Executive of the Year after building a tough, young team that lost to eventual champion Miami in six games in the playoffs.
The former Indiana State star won three MVP awards and three NBA titles during his Hall of Fame career with Boston.