Rebekah Brooks, chief executive of News International, has resigned, the company has confirmed.
Her departure follows days of increasing pressure to step down as the phone hacking scandal grew.
This afternoon Rupert Murdoch met the family of murdered teenager Milly Dowler, whose phone was allegedly hacked by the News of the World.
The family solicitor said Mr Murdoch was "humbled and very shaken" and offered a "full and sincere apology".
He is also due to apologise for the paper's "serious wrongdoing", in national newspaper adverts on Saturday.
Prime Minister David Cameron thinks that Rebekah Brooks's resignation was "the right decision", his official spokesman said.
Rebekah Brooks was the paper's editor between 2000 and 2003, during which time murder victim Milly Dowler's phone was hacked.
In a statement, she said she felt a "deep responsibility for the people we have hurt".
She said she wanted to "reiterate how sorry I am for what we now know to have taken place".
Her statement went on: "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.
"This is now detracting attention from all our honest endeavours to fix the problems of the past."
Ms Brooks, 43, who had been with News International for 22 years, bowed to the international pressure piling up on the company.
She has been replaced by Tom Mockridge, who was in charge of News Corporation's Italian broadcasting arm.
In other developments:
- Ex-News of the World editor Andy Coulson stayed as a guest of Prime Minister David Cameron at Chequers in March, several weeks after his resignation as communications chief, the Press Association quoted a Downing Street source as saying.
- The FBI is investigating reports that News Corporation sought to hack the phones of victims of the 9/11 attacks
- In an interview with the Wall Street Journal, Mr Murdoch defended the company's handling of the crisis
- Mr Murdoch and his son James have agreed to stand in front of the Commons media select committee next Tuesday to answer MPs questions on the hacking scandal. Mr Murdoch snr said he would use his appearance to challenge some of the "total lies" stated in Parliament
- Former Conservative Party chairman Lord Fowler, speaking in a House of Lords debate, said a full inquiry should have been launched following an Information Commissioner's report in 2006 which identified 305 national journalists who received private information from investigators
In a message to News International staff, News Corporation's chief executive in Europe, James Murdoch, hailed Ms Brooks as "one of the outstanding editors of her generation" who "can be proud of many accomplishments as an executive".
"We support her as she takes this step to clear her name," he said.
Mr Murdoch revealed that News Corporation was planning to use national press adverts this weekend to apologise to the nation for wrongdoing at the News of the World.
"We are also sending letters to our commercial partners with an update on the actions we are taking.
"The company has made mistakes. It is not only receiving appropriate scrutiny, but is also responding to unfair attacks by setting the record straight."
Mr Murdoch praised new chief executive Tom Mockridge as "a highly respected and accomplished media executive", who had shown "leadership and integrity" in creating the Sky Italia 24-hour TV news channel in Italy.
The leader of the Labour Party, Ed Miliband, welcomed her resignation and said that no-one should exercise power without responsibility.
"It is right that Rebekah Brooks has finally taken responsibility for the terrible events that happened on her watch, like the hacking of Milly Dowler's phone," Mr Miliband said.
"But as I said when I called for her resignation 10 days ago, this is not just about one individual but about the culture of an organisation.
"Rupert Murdoch says that News Corp has handled these allegations 'extremely well'. He still hasn't apologised to the innocent victims of hacking. He clearly still doesn't get it."
John Whittingdale, chairman of the Commons Culture, Media and Sport Committee, said he believed her resignation had been "inevitable".
"I think many people expected it to come rather sooner, but I think her position was extremely difficult," he said.
"I think the most shocking revelation of all, perhaps, was the hacking of Milly Dowler's phone, which took place when she was the editor of the paper and there has obviously been a stream of revelations since then."
Ms Brooks is still expected to appear alongside Rupert and James Murdoch at Tuesday's sitting of Mr Whittingdale's committee.
Mark Lewis, the solicitor representing Milly Dowler's family, told the BBC: "She should have gone ages ago. It happened on her watch.
"The Dowler family shouldn't have had to wait for this moment. We can't gloat on this position but it's right, it's what should have happened."