News: Marwan Fawaz will replace him as its new CEO.
In January 2014, Google paid $3.2bn to buy Nest, a maker of smart smoke alarms and thermostats for homes.
The buyout was aimed at bolstering its collection of smart products, while giving Nest the opportunity to create more smart appliances and grow in other countries.
However, there had been reports of employees complaining about the management of the business, the BBC reported.
Employees had even criticised the company for going slow in launching new products.
Fadell in a blog said: "Although this news may feel sudden to some, this transition has been in progress since late last year and while I won’t be present day to day at Nest, I’ll remain involved in my new capacity as an advisor to Alphabet and Larry Page.
"This will give me the time and flexibility to pursue new opportunities to create and disrupt other industries – and to support others who want to do the same – just as we’ve done at Nest."
He said that the company shipped four new hardware products and five significant App releases in 2015 alone.
Fadell added: "When Matt Rogers and I founded Nest six years ago, neither one of us imagined the company and products would take off as quickly as they did. We hit the ground running and – along with the rest of the Nest team – haven’t paused since."
He will be replaced by Marwan Fawaz as the new CEO of the company. Previously, he worked with Motorola in its home division.
Fadell said: "Marwan’s extensive technology and engineering knowledge, his experience with global service providers, as well as his background in connected home platforms will be valuable in continuing our trajectory, especially in scaling the business, working with our partners, and supporting our enterprise channels."
Earlier this year, a technical glitch in Nest’s smart thermostat raised concerns over its products. Nest’s acquisition of security camera maker Dropcam for $555m in 2014 intensified its problems.
Dropcam’s founder Greg Duffy criticised the management of Fadell at the time of leaving the company.
Duffy in a Medium post wrote: "The 50 Dropcam employees who resigned did so because they felt their ability to build great products being totally crushed.
"According to LinkedIn, total attrition to date at Nest amounts to nearly 500 people, which suggests that we were not alone in our frustrations."