Kerrey told the New School's board of trustees last night that he would step down when his contract expires on June 1, 2011.
Kerrey, 65, has served as president of the progressive Greenwich Village since 2001.
He is credited with helping to raise the national profile of the school, but his tenure has been marked by clashes with both students and faculty.
"Orderly transition is very important to me and it's not easy in any organization -- for-profit and nonprofit," he said.
Word of his 2011 departure is likely little relief to many faculty members who accuse him of centralizing power and sacrificing the university's core academic values.
Kerrey received a no-confidence vote from 74 senior, tenured faculty members last December.
Supporters of the vote had hoped it would pressure the school's board of trustees to fire him immediately. But the board gave Kerrey a unanimous vote of confidence at its regular meeting.
Students calling for his ouster did it the old-fashioned way -- through loud protests and building occupations. Both last month and in December, more than 100 student protesters broke into a campus buildings, occupying them for several hours.
In April, 22 students were arrested. So much for an orderly transition.
Kerrey, an unsuccessful candidate for the Democratic nomination for president in 1992 who lost part of his right leg in combat, said while he took faculty members' concerns seriously, he was undaunted by Wednesday's vote. He noted that the group that met Wednesday was a fraction of the New School's 333 full-time and 1,733 part-time faculty.