Architect of Trump's yet-to-be-announced 'Deal of the Century' resigns
Jason Greenblatt said in a statement it had been the "honour of a lifetime" to work in the White House.
The Middle East envoy spent the majority of his two-and-a-half years working under Trump crafting the yet-to-be-revealed "Deal of the Century".
"I am incredibly grateful to have been part of a team that drafted a vision for peace," Greenblatt said on Thursday.
"This vision has the potential to vastly improve the lives of millions of Israelis, Palestinians, and others in the region."
The much-anticipated Israeli-Palestinian peace plan has seen multiple delays but is pegged to be revealed after Israel's general elections later this month.
It is unclear when exactly Greenblatt will leave the administration, although an unnamed official told CNN he would likely leave after the official announcement of the plan.
Avi Berkowitz, an advisor to Jared Kushner, is expected to take up most of his duties.
A senior Trump administration official said Greenblatt had resigned to spend more time with his familu but left on good terms and "holds the confidence of the president".
"After almost 3 years in my Administration, Jason Greenblatt will be leaving to pursue work in the private sector. Jason has been a loyal and great friend and fantastic lawyer," the president said in a tweet on Thursday.
"His dedication to Israel and to seeking peace between Israel and the Palestinians won't be forgotten."
Trump's son-in-law and senior advisor Jared Kushner also heaped praise on Greenblatt in a statement on Thursday.
"Jason has done a tremendous job leading the efforts to develop an economic and political vision for a long sought after peace in the Middle East," he said.
"His work has helped develop the relationships between Israel and its neighbors as he is trusted and respected by all of the leaders throughout the region."
The deal has so far failed to address key Palestinian demands such as the establishment of their own independent state, drawing condemnation from Palestinian officials and civilians.
Publicised segments of the peace plan have instead focused on economic investment in occupied Palestine.
Palestinian officials argue the Trump administration is in favour of Israel.
The US president broke with decades of international consensus by recognising the contested city of Jerusalem as the capital of Israel and affirming Israel's annexation of the occupied Golan Heights.
Trump has also cut hundreds of millions of dollars in aid for Palestinians and shut their de facto embassy in Washington.