Reid - who has been a judge on the talent show for the last two seasons - said that he wants to invest renewed energy into developing talent at Epic Records, of which he is chairman and CEO.
He told Access Hollywood: "I have decided that I will not return to The X Factor next year. I have a company to run that I've kind of neglected."
Reid added of his decision: "It saddens me a little bit, but only a little bit."
The Hollywood Reporter additionally claims that it is currently unclear whether Britney Spears or Demi Lovato will remain on board for the show's forthcoming third season, which is due to air next year.
The publication quotes Reid as saying that he will miss the show, commenting: "I have the utmost respect for Simon Cowell. He is the very best, and I have had the opportunity to learn so much from him.
"Working with him on X Factor has been a once-in-a-lifetime experience. I'm honoured to have sat on the panel with such incredible talent."
Reid has one remaining contestant - country singer Tate Stevens - in the competition this season, with the finalists due to be named later tonight (Thursday, December 13).