The move came as the latest poll showed him trailing badly in the field for the Oct. 7 election.
Ueberroth, former baseball commissioner and chief of the 1984 Los Angeles Olympic Games, said his focus on creating jobs had caught on with voters but that his candidacy did not have enough time left.
He said he would offer his economic advice to the next governor, Democrat or Republican.
Ueberroth's exit was likely to be welcomed by Republicans who have lamented that having three prominent GOP candidates on the ballot would split the vote, ensuring that a Democrat would replace Davis if voters recall him from office.
The latest Field Poll, released earlier yesterday, seemed to confirm that, showing that the competing candidacies of remaining Republicans Arnold Schwarzenegger and state Sen. Tom McClintock are hurting the party's chances of taking over the governor's office.
Without McClintock in the race, Schwarzenegger would lead Lt. Gov. Cruz Bustamante, the only prominent Democrat, 33 percent to 31 percent, a statistical dead heat, pollsters said.
McClintock, who appeals to the Republican Party's conservative base, has said repeatedly that he would not quit the race. Asked again yesterday, he replied: "What is it about the word no you guys don't understand?"
The competing candidacies are likely to be a central topic when the state GOP meets this weekend in Los Angeles.
In an interview with Los Angeles radio station KNX-AM, McClintock rejected the idea that Ueberroth's departure increases pressure on him to quit.
"Arnold Schwarzenegger is going to be under intense pressure to debate his fellow Republican at the state convention and state his positions as clearly and unequivocally as I have stated mine," he said.
Former GOP gubernatorial candidate Bill Simon and Rep. Darrell Issa, who financed the recall effort, said earlier that they were quitting the race.
The latest poll showed Schwarzenegger as the leading GOP candidate, with the support of 25 percent of likely voters. McClintock was at 13 percent after gaining 4 percentage points. Ueberroth had 5 percent.
Bustamante led overall with 30 percent.
The phone poll of 505 likely voters has a margin of error of 4.5 percentage points.