His decision was announced to nation by Prime Minister Mariano Rajoy, who urged Spaniards to show their gratitude to the 75-year-old monarch. "He has been the best spokesman and image of Spain in all corners of the world."
The Spanish leader also expressed his confidence in the Crown Prince Felipe.
The decision comes after years of speculation that such a move was planned. Felipe and his wife Crown Princess Letizia, a glamorous former TV news anchor, have been taking a more active role in representing Spain since the King suffered health problems in 2012.
He had a series of operations on his hip after falling during an elephant hunting trip in Botswana. In response to criticisms about the holiday during Spain's recession the monarch apologised.
The crisis followed a judicial investigation into his son-in-law, Iñaki Urdangarin, on allegations of corruption. It's claimed that the former Olympic handball champion used a foundation he headed to divert public funds.
Despite the problems of the last few years the sovereign has remained a powerful figure in Spain's national identity. He was seen as a unifying figure following the end of Franco's dictatorship.
When Juan Carlos was born in Rome on January 5, 1938, the chances of him acceding to the Spanish throne looked remote.
His grandfather, Alfonso XIII, had been forced into exile in 1931 first to Italy and then to Lisbon.
From the age of nine he was educated in Spain. In 1954 he enter Spain's premier military academies, graduating as a naval, army and air force officer complete with pilot's wings.
Juan Carlos, who is a graduate of Madrid's Complutense University of Madrid, was designated Franco's heir in 1969. When the dictator died in 1975, the dashing young Spanish royal was crowned flanked by his wife Sofia of Greece, whom he wed in 1962.
Three children were born of their marriage Elena in 1963, Cristina two years later and a son and heir, Felipe, in 1968.
In 1981, he faced the biggest crisis of his career when ultra-conservative army officers attempted a right wing coup. Juan Carlos appeared on TV and ordered all military units back to their garrison.
For his bold actions on that night, the King will always be remembered with gratitude.