Paphitis said he was sad to leave after "nine intense and fun-packed series".
During his time on the show, he gave financial backing to a number of businesses, including Scots company Funky Moves who received £120,000 from Paphitis and fellow Dragon Peter Jones to invest in their electronic interactive sports cone game.
He said: "This has not been an easy decision or one that I have taken lightly, but with the workload involved in growing my exciting, successful new lingerie brand Boux Avenue both in the UK and internationally, along with my recent purchase of the Robert Dyas retail chain and the running of the 240 Ryman stationery shops, the time felt right to give up my seat, stop breathing fire and allow someone else to enjoy the wonderful experience of being a Dragon on the BBC hit TV show, Dragons' Den.
"So, it just leaves it for me to say thank you to all past and present Dragons, the brilliant production teams that made the show what it is and of course the BBC for allowing me to participate in the first place.
"Thank you Auntie. I Am Out."
The show, hosted by Evan Davis, has made stars out of the Dragons - the wealthy investors who choose whether to back the contestants - including Hilary Devey and Duncan Bannatyne.
Among its successes have been Levi Roots, who won investment for his Reggae Reggae Sauce and has gone on to found his own food empire.
Janice Hadlow, controller of BBC2, said: "I'd like to thank Theo for everything he has done over many years to make Dragons' Den one of the jewels in BBC2's crown.
"He'll be much missed, not only for his dragon-like ability to interrogate an idea, but also for the generosity of spirit he always showed towards any entrepreneur he thought was doing their best.
"He will be much missed in the den, and we wish him all the very best for the future."