Paul discussed the matter with staff Wednesday morning and sent out a statement confirming the decision to drop out of the Republican presidential primary.
"It's been an incredible honor to run a principled campaign for the White House," Paul said in the statement. "Today, I will end where I began, ready and willing to fight for the cause of Liberty."
Paul, a Kentucky Republican, is expected to instead place his focus squarely on his Senate reelection bid, where he faces a wealthy Democrat, Lexington Mayor Jim Gray, who has the money to partially finance his campaign.
Paul finished a disappointing fifth place in Monday's Iowa caucuses, registering just 4.5% of the vote despite placing a heavy emphasis on the state's college towns to bring out younger voters inspired by his libertarian-minded message. He promised that night to continue his campaign.
Paul will not make an endorsement in the GOP presidential race before next week's New Hampshire primary, his spokesman Sergio Gor told CNN.
Ohio Gov. John Kasich told CNN he planned to call Paul, and that he wished him the best.
"I don't think he'll be for me, but I like him a lot. And I think he brought a lot to the race and I think the issues about the balance between the need for security and personal liberty was an important one. He's a good man and I wish him nothing but the best," Kasich said, adding that, if needed, he would campaign for him in his Kentucky Senate race.
Sources close to Paul said a review of their results made clear to Paul that there was not a viable path to winning the Republican nomination and that fund-raising was becoming extremely difficult.
Indeed, as the New Hampshire primary approaches, where his father Ron Paul won 23% of the vote in 2012, polls have found the younger Paul struggling to gain traction.
Paul's calls for a less aggressive foreign policy, which his critics have dubbed as "isolationist," failed to connect with GOP voters at a time of growing national security fears. Moreover, Paul had a hard time reestablishing his father's libertarian coalition because he had sought to broaden his appeal to more establishment-minded Republicans, hurting his credibility with some in his core base of supporters.
Dropping out this early is a disappointment for Paul. He had engineered a major change in Kentucky's primary system to allow him to run for two offices at the same time, a move aimed at circumventing a prohibition in state law prohibiting candidates from doing so. The state party agreed to change its traditional paper ballot primary to a caucus system in early March, in order to let him avoid the restriction that he couldn't appear on the ballot twice.
Still, as he now focuses on his Senate race, he remains the heavy favorite in a state that has grown increasingly red.
"The Democrat Party in Kentucky has been very wounded by President Obama," Paul told CNN Sunday when asked if he were concerned about Gray's candidacy.
Paul's campaign account tweeted a reminiscent video Wednesday morning, thanking his supporters and featuring highlights from the senator's presidential bid.