She announced on a Facebook video she will not be running as the party's lead candidate in September when Chancellor Angela Merkel will seek a fourth term in office.
She spoke of internal tensions within the party ahead of the party conference this weekend in Cologne.
A month ago she hinted at leaving frontline politics in a newspaper interview.
Frauke Petry has pulled out of the country's General Election race
Pregnant with her fifth child, it is known she has grown disillusioned with frontline politics in recent months as her party ratings dip and internal squabbles claim leadership scalps.
She said it was useful now to consider life, adding: "So that is what I think now, after more than four years in the AfD, which have meant a tremendous effort and a departure from a regulated life."
Ms Petry had been expected to lead the party charge in the autumn general election when it will seek to get MPs into national government for the first time.
She announced on a Facebook video she will not be running as the party's lead candidate in September
The external image of the AfD continues to be characterised by the uncoordinated, maximum provocations of a few representatives
Founded originally as a eurosceptic party, the anti-immigrant AfD has veered more to the right in recent years.
Ms Petry said in the video that the party has struggled to find a common strategy since 2015, despite winning big in regional elections last year.
Get Quotes on Home Insurance
In the video, Ms Petry said: "The external image of the AfD continues to be characterised by the uncoordinated, maximum provocations of a few representatives – which were totally surprising to the party leaders."
Angela Merkel's ever changing face
Mon, March 20, 2017
German Chancellor, Angela Merkel and her ever changing face
1 of 15
She went on to say that some of their voters had been scared off by these incidents, which in turn contributed to the party losing support.
According to Tagesspiegel, Alice Weidel could now be an alternative lead candidate to Ms Petry.
Ms Petry, who once called for police to open fire at the German border on illegal refugees, made no reference to her future plans.