"As one of the founders and the leader of VMware, Diane guided the creation and development of a company that is changing the way people think about computing," said VMware chairman Joe Tucci.
"The board thanks her for her considerable contributions to VMware and wishes her every success in the future."
The news broke as VMware announced that its sales figures were expected to be "modestly below" the 50 per cent growth the company had predicted.
The markets reacted sharply, and shares in the company have fallen 30 per cent so far.
The news came at a particularly damaging time, given Microsoft's aggressive entry into the virtualisation market.
The move is a sorry end for Greene. She set up the company with her husband Mendel Rosenblum and Scott Devine, Edward Wang and Edouard Bugnion and it quickly became the market leader in virtualisation software.
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iTnews Executive Retreat - Security Leaders Edition
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