"I'm going to continue to work hard. I'm going to work very hard to keep jobs in this state and to create jobs in this state, but not as a candidate for governor," Ueberroth said at a news conference at his campaign headquarters.
Ueberroth's exit leaves just two prominent Republicans on the ballot: Arnold Schwarzenegger and state Sen. Tom McClintock. Republicans had been afraid that having three big-name candidates on the ballot would split the party vote.
The announcement came the same day a new Field Poll poll showed Ueberroth with support from just 5 percent of California voters, far behind the top Democrat, Lt. Gov. Cruz Bustamante, and Schwarzenegger, the leading Republican.
Ueberroth said he will not immediately endorse another candidate. Instead, he will hold individual meetings with the other candidates to hear their plans on job creation, and will endorse a candidate he believes has the best plan.
Ueberroth was hailed as an experienced "grownup" in the chaotic effort to unseat Davis, but the former chief of the 1984 Los Angeles Olympic Games failed to gain traction among voters.
Critics said his own deep pockets and contributions from his wealthy friends were all that kept his campaign viable. Ueberroth raised $3,106,481, including $1 million of his own money.
Ueberroth himself said he didn't do well in his first debate, and acknowledged in an interview with The Associated Press last week that he got "frustrated with all the hoopla."
The new Field poll has Bustamante leading Schwarzenegger, 30 percent to 25 percent, a slight increase for the lieutenant governor since last month.
State Sen. Tom McClintock, the leading conservative in the race, was in third place at 13 percent, a gain of four points.
Ueberroth was next at 5 percent, followed by columnist Arianna Huffington att 3 percent and Green Party candidate Peter Camejo with 2 percent.
The poll also shows that support for the recall of Davis has leveled off following steady increases over the past five months.
Fifty-five percent of likely voters now support ousting Davis, down from 58 percent in an August poll. Forty percent said they opposed the recall, a gain of three percentage points from last month.
The poll, conducted over a five-day period ending Sunday, was drawn from telephone interviews with 505 likely voters. It has a margin of sampling error of plus-or minus 4.5 percentage points.
Davis' campaign interpreted the results as a 6-point gain for the governor.
"We see support for the recall fading," said Gabriel Sanchez, a spokesman for the Davis camp.
The poll came just 30 days before the Oct. 7 vote, and as Bustamante, McClintock, Huffington and Camejo prepared to meet for the campaign's second debate Tuesday, sponsored by the Greenlining Institute.
Schwarzenegger will not be participating in Tuesday's forum. He has agreed to take part in only one debate, sponsored by the California Broadcasters Association in late September, for which questions will be provided ahead of time.
McClintock, who appeals to the Republican Party's conservative base, has repeatedly said he would not quit the race to clear the way for Schwarzenegger. Asked again Tuesday, he responded, "What is it about the word 'no' you guys don't understand?''
The twin candidacies are likely to be a central topic when the state Republican Party meets this weekend in Los Angeles.
In an interview with Los Angeles radio station KNX-AM, McClintock rejected the idea that Ueberroth's departure increased pressure on him to drop out.
"I think that 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. "I do not believe that a candidate can be taken seriously if he's not willing to face his opponent in an open debate."
Ueberroth's departure is the latest among GOP candidates. Former gubernatorial candidate Bill Simon and U.S. Rep. Darrell Issa, who financed the recall effort, earlier said they were dropping out of the race.
Simon and Ueberroth's names will still appear on the ballot, while Issa's will not because he never filed candidacy papers.