University officials and political science professor Norman Finkelstein issued a statement announcing the resignation, which came as about 100 protesters gathered outside the dean's office to support him.
Finkelstein was denied tenure in June after spending six years on DePaul's faculty, and his remaining class was cut by DePaul last month.
His most recent book, "Beyond Chutzpah: On the Misuse of Anti-Semitism and the Abuse of History," is largely an attack on Harvard law professor Alan Dershowitz's "The Case for Israel."
In his book, Finkelstein argues that Israel uses the outcry over perceived anti-Semitism as a weapon to stifle criticism. Dershowitz, who threatened to sue Finkelstein's publisher for libel, had urged DePaul officials to reject Finkelstein's tenure bid.
Finkelstein, the son of Holocaust survivors, said in the statement that he believes the tenure decision was "tainted" by external pressures but praised the university's "honorable role of providing a scholarly haven for me the past six years."
The school denied that outside parties influenced the decision to deny Finkelstein tenure. The school's portion of the statement called Finkelstein "a prolific scholar and an outstanding teacher." Finkelstein called that acknowledgment the most important part of the statement.
"I felt finally I had gotten what was my due and that maybe it was time, for everybody's sake, that I move on," he said at a news conference after a morning rally staged by students and faculty who carried signs and chanted "stop the witch hunt."
Finkelstein said, "DePaul students rose to dazzling spiritual heights in my defense that should be the envy of and an example for every university in the United States."
The professor would not discuss financial terms of the resignation agreement, which he said was confidential, but noted that it does not bar him from speaking out about issues that concern him, including "the unfairness of the tenure process."
He also said he doesn't know what he'll do next but came to realize before Wednesday "that the atmosphere had become so poisoned that it was virtually impossible for me to carry on at DePaul."
The propagandistDershowitz, too, was critical of the school. "DePaul looks like they caved into pressure," he said in a telephone interview. "The idea of describing him as a scholar trades truth for convenience. He's a man who is a propagandist and is not a scholar."
Still, Dershowitz said, "I'm happy he's out of academia. Let him do his ranting on street corners."
Dozens of supporters wearing T-shirts that read: "We are all Professor Finkelstein" wondered about the long-term effects on the school.
"I think there's just going to be a longstanding sentiment of an injustice here," said Thomas Bellino, a 22-year-old student who has taken classes from Finkelstein.
"Parents of students should ask themselves, 'do I send my kid to a school where professorships are dubious, in terms of hiring and firing?'"