In a statement, Saints said 41-year-old Grayson was leaving Franklin's Gardens by "mutual consent".
The ex-Saints and England number 10 has been at the Aviva Premiership club as player and coach for 19 years.
He is the club's record points-scorer, amassing almost 2,800 across 259 games, and kicked them to victory in the 2000 Heineken Cup final against Munster.
He was part of England's 2003 and 2007 World Cup squads, winning 32 caps, while he also toured South Africa with the 1997 British and Irish Lions.
Grayson said: "I have put heart and soul into the club over many years, as have my wife and children.
"I enjoyed myself as a player here and over the past few years it has been satisfying to have played a part in helping the Saints get back to the top of the club game.
"After 19 years at Franklin's Gardens I need to prioritise my wife and children and make some sacrifices for them.
"As such, I am happy to step away from my role with the club in good health and on the right path, and look forward to exploring the many opportunities that are out there in the world of rugby."
Saints rugby director Jim Mallinder added: "Grase has been a big part of the Saints for many years and has played an important role in our development.
"The records he set as a player will take something special to break, and as a coach he has helped bring on some very talented individuals.
"We will use this as an opportunity to freshen things up and move things forward."
There is no current indication of Grayson's next rugby move, although given his pedigree, he should not be short of offers.
Northampton chairman Leon Barwell said Grayson and the club were parting amicably.
"Paul has been at Franklin's Gardens for the best part of two decades, which is longer than just about everyone else at the club," Barwell said.
"It's fair to say that we would not have won the Heineken Cup without him, and we were proud to see him represent the club on the biggest stages of all, including successive Rugby World Cups and with the British and Irish Lions.
"In more recent years he has worked with Jim Mallinder and Dorian West to get the Saints back to the highest levels of English and European rugby.
"However, this is a professional sport, and tough decisions are sometimes taken which we just have to get on and make the best of.
"We are parting amicably, and I am sure that everyone associated with the Saints wishes Paul and his family every success in whatever he chooses to do in the future."
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