Torre turned down a $5 million, one-year contract Thursday that still would have made him the highest paid manager in baseball.
Bench coach Don Mattingly is the leading contender to replace Torre, who led the Yanks to 12 straight playoff appearances and won four World Series championships. Yankees broadcaster Joe Girardi, the NL Manager of the Year with Florida in 2006, is another top contender.
"It's a difficult day," general manager Brian Cashman said.
But it was a day Yankees' fans could see coming.
After losing the first two playoff games to Cleveland, owner George Steinbrenner said he didn't think Torre would be back if the Yankees didn't advance.
Torre, who took over the team to start the 1996 season, made his decision after traveling from New York to the team's spring training complex in Tampa, Fla. He was accompanied by Cashman and chief operating officer Lonn Trost.
"It is now time for the New York Yankees to move forward," team president Randy Levine said.
Torre made $7.5 million this year, the final season of a $19.2 million, three-year contract. His new deal would have included substantial bonuses for each round of the playoffs the team reached.
"We felt we needed to go to a performance-based mode," Levine said. "We thought it was very fair. It clearly was at the top of the market, but we respect Joe's decision."
Torre led the Yankees to the postseason every year he managed them, winning the AL East 10 times. But the Yankees have gone without a Series championship in the last seven and haven't even reached it since 2003, a stretch of futility that finally prompted Steinbrenner to make a change.
With 2,067 regular-season wins, Torre is eighth on the career list and was third among active managers behind Tony La Russa of the St. Louis Cardinals (2,375) and Bobby Cox (2,255) of the Atlanta Braves. Torre's four World Series titles are likely to earn him a place in the Hall of Fame - every manager with three or more has been inducted.
As for salary, he led all managers; Lou Piniella of the Cubs was second at $3.5 million a year.
Torre's was the longest uninterrupted term for a Yankees manager since Casey Stengel held the job from 12 years from 1949-60. Stengel was pushed out, too, let go after his team lost a seven-game World Series to Pittsburgh.
Under Torre, the Yankees went 1,173-767. He trails only Joe McCarthy (1,460) for wins among Yankees managers.
"This has been a great 12 years. Whatever the hell happens from here on out, I'll look back on these 12 years with great, great pleasure," Torre said after his final game, his voice quavering as he tried to avoid choking up. "The 12 years just felt like they were 10 minutes long, to be honest with you."
He wouldn't address his future.
"If I have some options, I'll look at it because I'm certainly not ready to move somewhere and not do anything," the 67-year-old New Yorker said.
When Torre succeeded Buck Showalter, the Yankees had not won the World Series since 1978, the longest drought since the team's first title in 1923. It was the 20th change in manager following Steinbrenner's purchase of the franchise in 1973.
Torre never had much success as a manager before landing in New York, and many predicted he would be gone in no time. But he turned out to be a rock and a buffer to the blustery Steinbrenner. He was calm, stoic and brought an unprecedented period of stability to a team accustomed to constant turmoil.
The Brooklyn native was a former NL MVP and a nine-time All-Star. Before joining the Yankees, he had unsuccessful managing stints with the Braves, Cardinals and Mets, the three clubs he played for. When the Yankees hired him, one New York paper dubbed him: "Clueless Joe."
But New York won the World Series in 1996, led by a group that included Bernie Williams, rookie Derek Jeter, setup man Mariano Rivera, Paul O'Neill and Tino Martinez. With catcher Jorge Posada added in, they won the Series from 1998-2000, the first team to win three straight since the Swingin' Oakland A's of 1972-74, and advanced to Game 7 of the Series in 2001, when they failed to hold a ninth-inning lead at Arizona.
Since then, despite baseball's largest payroll, there has been only frustration: a first-round loss to the Anaheim Angels in 2002, a World Series defeat to the Florida Marlins in 2003 and a painful exit the following year, when they allowed the Boston Red Sox to overcome a 3-0 deficit in the AL championship series.
They lost to the Angels in five games in the first round in 2005, were eliminated by the Detroit Tigers last year and were knocked out by Cleveland this year.
Communication between Torre and Steinbrenner deteriorated in 2005, and it wasn't clear that Torre would return for 2006 until after the pair met in Tampa. Steinbrenner meddled less with the team the past two seasons - even during a 21-29 start this year - giving almost unprecedented authority to Torre and Cashman.
Mattingly became the Yankees' bench coach this year following three seasons as hitting coach. A six-time All-Star and a former AL MVP, he starred for the team from 1982-95 and is a fan favorite whose No. 23 was retired by the Yankees in 1997.
Girardi is a Torre protege who kept a young Florida team in contention until late in the 2006 season with a no-nonsense approach.