Foley, who faced the Lions with the Wallabies back in 2001, had one year left on his two-season contract at the Waratahs who were keen to keep him despite a disappointing campaign in which they finished 11th in the Super 15 table after losing their final eight fixtures.
No reason for his departure was offered in Foley's resignation statement, making it even more likely that he will now fill the gap left by Richard Graham after the ex-Force boss left Perth to return to Queensland with the Reds.
"I'd like to thank the organisation and team for their support throughout my time here, particularly over the past season," said Foley, who took over as head coach this year after serving as an assistant to Chris Hickey for the previous three seasons.
"While it's been a challenging season for everyone, being involved over the last four years has been extremely rewarding, particularly being part of a team that was able to play in two finals series.
"I believe that the squad and organisation has the potential to turn it around and I wish everyone the best for next season."
While the Waratahs have announced that their search for a new coach will begin immediately, Foley's resignation has been met with criticism by former New South Wales and Wallabies favourite Matt Burke.
Burke held no punches as he gave a blunt assessment of Foley's decision when asked for his opinion on Australian radio station Triple M.
"It's a bit of a selfish one I reckon from Foley," said Burke.
"I thought he would have lived out the contract and coached in 2013.
"As it turned out it doesn't matter if you lose or win games these days, you pick up a gig anywhere."
No announcement has been made by the Force but it would now be a major shock if Foley didn't end up on the West coast next season.
Michael Cheika had reportedly been offered the top job at the Force earlier this month but the man who led Leinster to their first Heineken Cup crown in 2009 decided against joining Australia's bottom-place franchise.
Cheika is now being tipped to take over from Foley at the Waratahs, ensuring he could still lead a side against the Lions when they head Down Under in 2013.