Schmidt, who has been with the company for 17 years, will remain on the board and continue to serve as a technical adviser.
Schmidt's stint as executive chairman is to end at a regularly-scheduled board meeting next month, according to Alphabet. The company said it expects the board to appoint a non-executive chairman to replace Schmidt.
No reason was provided for the change.
"Larry, Sergey, Sundar and I all believe that the time is right in Alphabet's evolution for this transition", said Mr Schmidt.
"Since 2001, Eric has provided us with business and engineering expertise and a clear vision about the future of technology", noted Larry Page, CEO of Alphabet.More news: Burlington Salvation Army Christmas kettle campaign tops $200K
Alphabet executive chairman Eric Schmidt speaks at the 2017 SALT conference in Las Vegas.
CNBC reports that Schmidt's new role will likely include advising "the company's urban development arm, Sidewalk Labs, its deep learning efforts, and its healthcare spin-offs, Verily and Calico".
Schmidt had a long career in the technology industry before he joined Google.
During his tenure, Schmidt wound up at the center of a civil suit in United States federal court over an "anti-poaching" agreement involving tech giants Apple, Google, Intel and Adobe.
Alphabet's "Other Bets" businesses include self-driving auto company Waymo, and other technology companies such as Nest, Fiber and Verily.
He was the company's chief executive from 2001 through to 2011, a period in which he oversaw the search engine's development into one of the most powerful technology companies in the world.
Alphabet shares ended Thursday 0.25% lower at $1,070.85.