The announcement, which was widely expected, has been foreshadowed by speculation about Lord Donaldson's successor. Lords Justice Bingham and Woolf are among those likely to be considered for the post.
Lord Donaldson said: 'I have come to the conclusion that 10 years as Master of the Rolls is enough for both me and the Court of Appeal.'
He told the Lord Chancellor, Lord Mackay of Clashfern, at the beginning of the year that he intended to retire. His decision to step down six days before his 72nd birthday in September follows Lord Lane's retirement as Lord Chief Justice earlier this year. Lord Donaldson has been on the bench for 26 years.
His appointment in 1982 was denounced by some observers as political; he had been a Tory councillor and had presided over the Conservative government's ill- fated National Industrial Relations Court in the 1970s. Michael Foot said he had a 'trigger-happy judicial finger'.
However, as head of the civil division of the Court of Appeal, he has spoken out against the Government on occasions, for instance when he talked last year of the need for an independent judiciary to hold the line against the executive. He has also been praised for streamlining court procedure and cutting the time and money expended on hearings.
Called to the Bar in 1946, he became a QC in 1961 and was appointed to the Queen's Bench division of the High Court five years later. He presided over the trials of the Guildford Four and the Maguire Seven.