In his first stint at Mumbai Indians from 2017 to 2022, the 49-year-old guided the side to three titles.
However, the former Sri Lanka captain was not able to replicate that success after rejoining the side in 2024, with Mumbai Indians finishing fourth in 2025 and losing in the playoffs, before ending the league second-bottom in 2026.
"Together, we have shared some unforgettable moments, overcome challenges and built something we can all be proud of," Jayawardene said in a statement.
"I leave with immense pride in what we have achieved together and will always carry a special place in my heart for MI. I wish the team every success in the years ahead."