Williams has played a part in 13 of the golfer's 14 major wins since they began working together in 1999.
Woods made the announcement on his website, saying: "I want to express my deepest gratitude to Stevie for all his help, but I think it's time for a change.
"Stevie is an outstanding caddie and a great friend and has been instrumental in many of my accomplishments. I wish him great success in the future."
Williams released his own statement through his website and expressed some surprise at the decision.
"After years of loyal service needless to say this came as a shock," he said.
"I am very disappointed to end our successful partnership at this time," he added.
It is not known who the 10-time PGA Player of the Year will employ as his new caddie, but Williams will partner Adam Scott on a permanent basis having spent the last two majors working with the Australian.