Mr McCarthy, aged 54, has been with the council since its creation as a unitary authority in 1997, holding various director posts, before becoming Deputy Chief Executive in 2001 and taking up his current role in November 2004.
Mr McCarthy said: “I have had four brilliant years as the chief executive of the city council and 12 in total.
"But I now feel it’s time to take on some new challenges and to allow some fresh talent to help unlock the tremendous potential in the city.
“I shall be sad to say goodbye to the fabulous workforce but I am proud of what we have achieved in the time I have been there.
"We have made some excellent environmental and service improvements and I think Brighton & Hove is a better city to work, visit and live in than it has ever been.”
Council Leader Mary Mears said: "I want to thank Alan for all his hard work over the years and wish him well for the future. I hope he will continue to make a positive contribution to the city."
A new chief executive will be appointed in the coming weeks.