By Agence France-Presse
"In recent years, I've been spending a lot of my time on science and technology issues, and philanthropy, and I plan to expand that work," Schmidt said in a release.
Schmidt's stint as executive chairman is to end at a regularly-scheduled board meeting next month, according to Alphabet.
Google founders Larry Page and Sergey Brin recruited the proven businessman and skilled software engineer as chief executive in 2001, bringing a mature hand to the helm of the then three-year-old internet search company.
Schmidt, Page, and Brin were considered a power triumvirate in control of Google. Page replaced Schmidt as chief executive a decade later, but Schmidt remained at the head of the board of directors.
"Eric has provided us with business and engineering expertise and a clear vision about the future of technology," Alphabet chief Page said in a release.
"Continuing his 17 years of service to the company, he'll now be helping us as a technical advisor on science and technology issues."
About two years ago, Google unveiled a surprise corporate overhaul, forming a new parent company dubbed Alphabet to include internet search and a handful of independent companies.
Page became chief executive at Alphabet, a holding company for the tech giant's search products and "other bets" such Waymo self-driving car unit; Nest smart home gadgets, and Google Fiber internet service.
Sundar Pichai was promoted to chief of Google, which includes leading online video-sharing service YouTube.
Eric Schmidt went from being executive chairman at Google to having the same role at Alphabet.
"Larry, Sergey, Sundar and I all believe that the time is right in Alphabet's evolution for this transition," Schmidt said.
"The Alphabet structure is working well, and Google and the Other Bets are thriving."
- Poaching people -
During his tenure, Schmidt wound up at the center of a civil suit in US federal court over an "anti-poaching" agreement involving tech giants Apple, Google, Intel and Adobe.
The long-running case alleged that major tech companies in Silicon Valley had secret agreements not to hire each other's employees, in a move to keep salaries under control.
The lawsuit, which led to a $415 million settlement, alleged that the late Apple chief Steve Jobs, Google chairman Schmidt and other tech executives were part of the conspiracy.
Other companies in the lawsuit which reached earlier settlements included eBay, Lucasfilm, Pixar and Intuit.
Schmidt served for a few years on the Apple board of directors, but left there in 2009 as iPhone maker's rivalry with Android-backer Google intensified.
Schmidt ranks among the world's richest people. A Forbes real-time tracker on Thursday pegged his net worth at $13.8 billion, with most of that held in the form of Alphabet shares.
Schmidt was listed as a donor and advisor to the winning campaign by Barack Obama to become US president in 2008.
His philanthropic endeavors include the Schmidt Family Foundation established with his wife and focus on challenges such as climate change and protecting the environment.
Schmidt is also known to speak out on technology issues, expressing concerns about matters such as online spying and barriers to the free-flow of data.