His departure comes amid plans to cut about 1,200 jobs as part of a "strategic change" plan.
Woolworths is looking to cut millions of dollars in costs and improve sales after its first-half profits fell.
It hopes to win back customers from rivals such as Coles and Aldi by lowering prices and improving stores.
The retailer recently trimmed its profit guidance for the year to June, which would be only the second fall in annual profits for the company.
Since going public, the only other year that Woolworths' annual profits fell was 1999.
"The recent performance has been disappointing and below expectations. I believe it is in the best interests of the company for new leadership to see these plans to fruition," Mr O'Brien said.
Woolworths said it would start the search for a new chief executive. The company's head of retail services, Penny Winn, will also quit.
Shares in Woolworths rose by 2.4% in Sydney trading following the news.
The chief executive of Australia's Woolworths, Grant O'Brien, is stepping down after nearly four years at the supermarket chain.