Berlusconi arrived at the Quirinale Palace in Rome to hand in his resignation after leading a cabinet meeting during which he announced he was stepping down.
His step paves the way for centre-left Romano Prodi to form a new coalition government.
It also ends weeks of uncertainty in Italy after Berlusconi refused to resign after the country's closely contested election last month, which his conservative bloc lost by a small margin.
Carlo Azeglio Ciampi, the Italian president who steps down in a few weeks, asked Berlusconi to stay on as caretaker prime minister.
However, Ciampi must now decide when to hand Prodi the mandate to begin forming a new government.
Prodi is currently preparing a new cabinet line-up.
Prodi's bloc won a convincing majority in the lower house of parliament, but has only a tiny Senate majority.
Prodi welcomed news of Berlusconi's resignation as "an important step".
Berlusconi had refused to concede defeat after the closest Italian election in modern history, alleging voting irregularities.
However, Italy's supreme court dismissed Berlusconi's claims and confirmed Prodi's victory.
Elected in 2001, Berlusconi has been the longest-serving prime minister in postwar Italy.
But critics say he presided over a long period of stagnation in Italy's economy, and he has faced allegations of financial improbity and conflicts of interest.