Rebekah Brooks has resigned as chief executive of News International after days of fierce pressure over the phone hacking scandal.
Turbulent times for News International has seen it close down its 168-year-old News of the World in a vain bid to save Murdoch's bid for pay-TV giant BSkyB.
News International also runs The Sun, Britain's biggest selling daily newspaper, The Times and the Sunday Times.
The move by Ms Brooks ends her 22 years of climbing the ranks in the Murdoch media empire.
She started as a secretary at the News of World at the age of 20, became editor from 2000-2003 and then went on to edit The Sun until 2009.
She is also a former editor of the News of the World tabloid, but became headlines herself in recent days because of that tenure.
Prime Minister David Cameron had led calls for her resignation amid public outrage over allegations that the News of the World hacked the voicemails of a murdered girl, Milly Dowler, and of the families of dead soldiers.
The 42-year-old had originally offered her resignation to the Murdochs last week as News International took the decision to axe the News of the World, it is understood.
Mr Cameron said at the time that he would have accepted her resignation if it was up to him.
'It has been reported that she offered her resignation over this and in this situation I would have taken it,' he said.
Today, her resignation was accepted by the Murdoch family.
'I have given Rupert and James Murdoch my resignation. While it has been a subject of discussion, this time my resignation has been accepted,' Ms Brooks wrote in an internal message.
'As Chief Executive of the company, I feel a deep sense of responsibility for the people we have hurt and I want to reiterate how sorry I am for what we now know to have taken place,' she wrote.
'I have believed that the right and responsible action has been to lead us through the heat of the crisis. However my desire to remain on the bridge has made me a focal point of the debate.'
She told staff that she felt a 'deep sense of responsibility' for the crisis which has now spawned an FBI probe in the US.
Her resignation comes despite Mr Murdoch describing her as his first priority when he flew into London on Sunday to take charge of the crisis engulfing his media empire.
Ms Brooks said she would now concentrate on 'correcting the distortions and rebutting the allegations' about her record as a journalist, an editor and executive.
She said her resignation would allow her the time to give her full co-operation to the police investigation into phone hacking and police bribes, the judge-led inquiry into the scandal, and her appearance before the Commons Culture Media and Sport Committee on Tuesday.
Ms Brooks used her farewell message to praise Rupert Murdoch's 'wisdom, kindness and incisive advice' and his son James's 'great loyalty and friendship'.
'I have worked here for 22 years and I know it to be part of the finest media company in the world,' she wrote.
Her decision came after Mr Murodch finally broke his silence on a crisis that has forced him to shelve the BSkyB buy-out, close the News of the World and allow himself to be questioned by British lawmakers.
Ms Brooks will be replaced by Tom Mockridge, chief executive of satellite broadcaster Sky Italia.
He now faces a battle to restore the faith of readers and shareholders in Murdoch's stable of British newspapers.
