John Schnatter apologised after he used the racial slur in a training call with executives back in May.
The company announced that Mr Schnatter would be stepping down hours after he issued the apology for his comments.
Forbes had reported that Mr Schnatter used the slur during a media training exercise with a marketing group.
The call involved role-play exercised designed to give him experience dealing with difficult situations at work.
During the training he was asked how he would distance himself from racist groups and he complained that Colonel Sanders never faced a backlash for using the word.
On Wednesday a statement released by Papa John's - based in Louisville, Kentucky - said Mr Schnatter admitted the reports of "inappropriate and hurtful" language used by him were true.
The company also said that it condemned “racism and any insensitive language”.
Last year Mr Schnatter quit his role as chief executive of the company after he criticised national anthem protests by NFL players, which he said were hurting sales.
The players had been kneeling during the anthem in protest of the treatment of black people in the US.