"These seven years have been better than I could ever have imagined," Dungy, the only black coach to win a Super Bowl, said at a news conference yesterday. "I just have to thank everyone."
He will be replaced by associate coach Jim Caldwell.
Dungy has spent the past five years debating whether to leave football to spend more time with his family.
Dungy, 53, is the Colts' franchise leader in victories. He went 85-27 in the regular season and 7-6 in the playoffs, including the victory over Chicago in the 2007 Super Bowl.
Dungy's teams were also eliminated from the playoffs four times without winning a game, including the past two seasons after winning the Super Bowl.
The move comes a little more than a week after the Colts were eliminated from the playoffs.
The plan to have Caldwell replace Dungy was put in place last year when Dungy pondered retirement. Caldwell joined Dungy's staff in Tampa Bay in 2001, then moved with Dungy to the Colts in 2002 and was the quarterbacks coach. A year ago, Caldwell was elevated to associate head coach, though he continued to coach Peyton Manning and Jim Sorgi.
Broncos: : Patriots offensive coordinator Josh McDaniels, 32, signed a four-year deal reportedly worth about $8 million to become coach, replacing Mike Shanahan, the only NFL head coach to get fired by a team he led to consecutive Super Bowl wins.
McDaniels, 32, guided an offense that had led New England to 18 straight win before a stunning loss to the Giants in last season's Super Bowl. That team scored an NFL-record 75 touchdowns and 589 points.
Jets: : General manager Mike Tannenbaum's choice for head coach is likely to come down to three "favorites" - Giants defensive coordinator Steve Spagnuolo, Jets offensive coordinator Brian Schottenheimer and Ravens defensive coordinator Rex Ryan - but he's "having a hard time pulling the trigger," a league source familiar with the team's search told Newsday.
An organizational source told Newsday that Ryan's five-hour interview with owner Woody Johnson and Tannenbaum on Sunday in Baltimore went "very well."
Browns: : Owner Randy Lerner interviewed Ravens director of pro personnel George Kokinis on Sunday, and their meeting reportedly went well. But the possibility of hiring Kokinis as GM to partner with coach Eric Mangini will have to wait until after the Ravens' playoff run ends.
Steelers: : When Ben Roethlisberger went down two weeks ago after being struck by two Browns defenders, the quarterback suffered more than a concussion. He suffered a spinal-cord concussion that caused his arms to go numb, the Pittsburgh Post-Gazette reported yesterday.
It's the same injury that ended Ravens safety Dawan Landry's season when his helmet struck the knee of Browns running back Jamal Lewis in September.
Roethlisberger quickly regained feeling in his arms after being carted off the field Dec. 28, and he went on to throw for 181 yards and a touchdown in Sunday's playoff win against the Chargers.
Spach tore his right anterior cruciate ligament during the Cardinals' victory over Carolina on Saturday.
Jaguars: : Gene Smith was promoted to GM.
All-Pro center Kevin Mawae needs surgery on a partially torn tendon in his right arm. He will miss the Pro Bowl.