The Education Secretary was reportedly offered the Department for Work and Pensions – but chose to quit instead of being moved.
Ms Greening was also the Minister for Women and Equalities.
The resignation offers further instability for Theresa May as she attempts to assert her authority as Prime Minister.
The two politicians were locked in talks for more than three hours.
In a statement, Ms Greening said: “Social mobility matters to me and our country more than a ministerial career
“I’ll continue to work outside of government to do everything I can to create a country for the first time that has equality of opportunity for young people wherever they are growing up”
Ms Greening, who campaigned to remain in the European Union, could go on to threaten Mrs May’s Brexit majority as a heavyweight backbencher representing the Remain leaning constituency of Putney, which has a large student population.
The resignation also leaves the Prime Minister with a position to fill in the Department for Work and Pensions after the portfolio for the Department of Education was handed to Damian Hinds.
Downing Street officials said the Prime Minister was “disappointed” but respects Ms Greening’s decision.
Ms Greening was the second signature on Mrs May’s campaign to become party leader after David Cameron stepped down – however in recent months their relationship reportedly turned terse.
It comes after Jeremy Hunt reportedly refused to be moved from the Department of Health after being offered a new role, instead leaving Number 10 with the new title Secretary of State for Health and Social Care.
Following the resignation one Tory MP reportedly said it was a “damaging loss” adding that the PM “caves into boys but not a woman. Dreadful error”
With no new announcements expected tonight (8/1/18), here is the state of Theresa May’s Cabinet:
David Lidington – Cabinet Office Minister and Chancellor of the Duchy of Lancaster
Brandon Lewis – Conservative Party Chairman
James Cleverly – Conservative Party Deputy Chairman
Karen Bradley – Secretary of State for Northern Ireland
David Gauke – Lord Chancellor and Minister for Justice
Matt Hancock – Culture Secretary
Esther McVey – Secretary of State for Work and Pensions
Claire Perry – Minister of State for Business, Energy and Industrial Strategy
Caroline Noakes – Immigration minister
Julian Smith – Parliamentary Secretary to the Treasury
CHANGES IN TITLE
Jeremy Hunt – Secretary of State for Health and Social Care, formerly Secretary of State for Health
Sajid Javid – Secretary of State for Housing, Communities and Local Government, formerly Secretary of State for Communities and Local Government
STAYING IN PLACE
Philip Hammond – Chancellor of the Exchequer
Amber Rudd – Home Secretary
Boris Johnson – Foreign Secretary
Liam Fox – International Trade Secretary
Chris Grayling – Transport Secretary
Penny Mordaunt – Secretary for International Development
David Davis – Brexit Secretary
Greg Clark – Business Secretary
Michael Gove – Environment Secretary
Jeremy Wright – Attorney General
Andrea Leadsom – Leader of the Commons
Liz Truss – Chief Secretary to the Treasury
Sir Patrick Mcloughlin – Resigns as Conservative Party Chairman
James Brokenshire – Resigns as Northern Ireland Secretary due to ill health
Justine Greening – Resigns as Education Secretary and Minister for Women and Equality