Rosedale, who goes by the in-game alias 'Philip Linden,' said in a company blog posting that the move was done to foster further growth for the company.
"As we grow, the role of our CEO will increasingly be to hire and grow the right team - to lead and help the company scale - to thousands of people and tens of millions of users of Second Life," wrote Rosedale.
"I believe that we can hire a fantastic person in that role, and also give me the ability to totally focus myself on the job that I do well."
Rosedale founded Linden Labs in 1999. As Second Life began to pick up steam, the company became a web 2.0 icon, prompting such companies as Sun, IBM and Reuters to set up virtual "islands" to conduct business inside the game.
Rosedale stressed that he would not be leaving the company, and would still be heavily involved with the development of Second Life.
"Second Life is my life’s work, and I am not going anywhere," he wrote.
"I will focus on product strategy and vision, continuing to design the right kind of company, and being an effective communicator and evangelist about Second Life."