The 27-year-old actress - who has played Sinead O’Connor on the Channel 4 soap on and off since 2010 - made the revelation on her Instagram account.
Davis wrote: “Sometimes we make decisions based not on what we want but what we know is right!
“I have loved bringing Sinead into your homes for the past ten years but it’s with a heavy heart I have decided to leave Hollyoaks and now looking forward to working on new and exciting projects. Excited!”
The statement was attached to an image with read “goals: be happy”.
A spokesperson for Hollyoaks producers Lime Pictures said: “"In mutual agreement with Lime Pictures, Stephanie Davis is leaving her role as Sinead O'Connor on Hollyoaks.
“We would like to thank Stephanie for her huge contribution to the show and the enjoyment her character Sinead has brought to fans."
The actress joined the cast of Hollyoaks in 2010 but her contract was terminated in 2015 amid allegations that she was turning up to work drunk. She returned to the E4 soap as Sinead O’Connor in 2018.
Davis has spoken out about her battles with alcohol addiction and depression and revealed she attempted to end her life during a toxic two year on-and-off relationship with model Jeremy McConnell who she met on Celebrity Big Brother in 2016. They share a three-year-old son, Caben.
In November 2019 Davis revealed she had been diagnosed with high-functioning autism.
In 2018 she began dating co-star Owen Warner, who plays Romeo Quinn, but they split in September 2019.
Stephanie’s last big storyline in Hollyoaks came in November last year when her character Sinead jilted fiance Sami Maalik (Rishi Nair) at the altar, telling him on their wedding day that she had run away to Spain and would not be coming back.