The decision was announced by the club's chief executive, Steve Coverdale, yesterday.
The county endured a disastrous summer in which they finished 15th in the Championship, 13th in the AXA League and made early exits from both the Benson and Hedges Cup and NatWest Trophy.
A decision on his successor will be made over the next few weeks and Northamptonshire may look to a new overseas player to take on the job.
"Kevin has been typically committed and thoroughly professional as captain," said Coverdale. "His dedication and determination have been exemplary and he was as disappointed as anyone that the club didn't achieve more this season.
"He was appointed to provide positive leadership and in many ways he did that. However, the committee now feels that Kevin can best serve Northamptonshire in 1999 - his benefit year - by concentrating on his own performances as a player.
"No doubt there will be a lot of speculation, but at the moment there is no one under serious consideration to take over."
Australia's Cricket Board has ruled out any of its players appearing at hearings into match-fixing scandals while on the current tour of Pakistan. The commission had been seeking evidence from Mark Waugh and Mark Taylor.Reuse content