The Scottish actor, who joined the long-running sci-fi series in 2013 following the departure of Matt Smith as the time-traveling Doctor, made the announcement during an interview with BBC Radio 2 on Monday.
"I feel sad; I love Doctor Who, it's a fantastic program to work on, and it's been a huge pleasure to work with this family — I can't praise the people I've worked with more highly," Capaldi said. "But I've always been somebody that did a lot of different things. I've never done one job for three years. This is the first time I've done this and I feel it's sort of time for me to move on to different challenges."
"One of the greatest privileges of being Doctor Who is to see the world at its best," he added. "From our brilliant crew and creative team working for the best broadcaster on the planet, to the viewers and fans whose endless creativity and generosity and inclusiveness points to a brighter future ahead. I can't thank everyone enough. It's been cosmic."
Capaldi's departure following this year's Christmas special lines up with the departure of current showrunner Steven Moffat, who announced in early 2016 that he would step down after six seasons at the helm.
"For years before I ever imagined being involved in Doctor Who, or had ever met the man, I wanted to work with Peter Capaldi," said Moffat in a statement. "I could not have imagined that one day we'd be standing on the TARDIS together. Like Peter, I'm facing up to leaving the best job I'll ever have, but knowing I do so in the company of the best, and kindest and cleverest of men, makes the saddest of endings a little sweeter."
Doctor Who returns to BBC America with 12 new episodes later this year.