The Liberal leader made the announcement at a snap press conference on Tuesday afternoon, citing a desire to spend more time with family.

"I have given this job, which is an enormous honour and privilege, absolutely everything," he told reporters, thanking his wife Nicky and three children.

"It's undeniable it's had an impact on my family.

"I want to thank them for their amazing support for the 17 and a half years I have been a member of parliament - our children's whole lives."

The party will meet next week to decide on a new leader, with senior party members Deputy Premier Jeremy Rockliff and Treasurer Peter Gutwein frontrunners.

Mr Hodgman said two years out from the next poll was the right time to step away from politics but admitted he only finalised the decision in the past few days.

As recently as December he had told media he had no plans to quit and would lead the Liberals to the 2022 election.

Mr Hodgman swept to power in 2014 and four years later became just the second Liberal in the state's history to secure a second consecutive term.

He listed Tasmania's strong economy, tourism growth and reform in the education sector as among his proudest achievements.

"In the very first speech I made in our parliament, I spoke about the importance of education to give every Tasmanian their best shot in life," Mr Hodgman said.

Prime Minister Scott Morrison described the outgoing premier as a "Liberal legend" and a tremendous friend and support.

Mr Hodgman's government has copped criticism over a lack of affordable housing, health waiting lists and management of the state's tourism boom.

Labor opposition leader Rebecca White said she understood Mr Hodgman's desire to spend more time with family.

"Outside the cut and thrust of parliament, Will and I have always respected each other despite our political differences," she said in a statement.

Mr Hodgman, whose father, uncle, and grandfather also served in Tasmania's parliament, became the state's 45th premier when his party ended 16 years of Labor government.

Mr Hodgman said he has no idea what is next.

"I have no job to go to. But I am looking forward to becoming financially independent," he said, referencing Prince Harry and Meghan Markle's recent decision to step back from the royal family.

Mr Hodgman was first elected as a state member in 2002 in the southern seat of Franklin and was appointed leader of the state Liberal Party in 2006.

Australian Associated Press