The former Celtic midfielder took the decision after a change in ownership at the English non-league club.
The 52-year-old - who has also spent time in charge at Ross County and Hungarian club Ujpest - moved to the Carlisle-based club in September, appointing former Hibernian defender David Farrell as his assistant. His appointment also resulted in Scottish players such as Colin McMenamin and Willie Gibson joining the club.
However, McStay and his backroom team have also chosen to leave the club after it was confirmed that erstwhile Queen of the South defender Stephen Skinner has taken over as owner. A statement last night read: "The club can assure supporters that Celtic Nation will continue to move forwards and aim for promotion."