Ohio State initially called the remarks unacceptable and placed Gee on a "remediation plan" to improve his behavior.
Gee, 69, said in a statement he decided during a vacation last week that he would step down July 1.
"During my days away, I also spent some time in self-reflection," Gee said. "And after much deliberation, I have decided it is now time for me to turn over the reins of leadership to allow the seeds that we have planted to grow. It is also time for me to re-energize and refocus myself."
According to a recording of a Dec. 5 meeting obtained by The Associated Press under a public records request, Gee said Notre Dame was never invited to join the Big Ten Conference because "those damn Catholics" can't be trusted.
Gee also took shots at schools in the Southeastern Conference and Louisville, according to the recording of the meeting of the school's Athletic Council.
Gee apologized when the comments were revealed in an AP story last week, saying they were wrong and didn't reflect what the university stands for.
"They were a poor attempt at humor and entirely inappropriate," he said in a May 30 statement. "There is no excuse for this and I am deeply sorry."
Gee, who had taken heat before for uncouth remarks, told members of the council that he negotiated with Notre Dame officials during his first term at Ohio State, which began more than two decades ago.
"The fathers are holy on Sunday, and they're holy hell on the rest of the week," Gee said to laughter at the December meeting attended by Athletic Director Gene Smith, several other athletic department members, professors and students.
"You just can't trust those damn Catholics on a Thursday or a Friday, and so, literally, I can say that," said Gee, a Mormon.
Ohio State trustees learned of Gee's statements in January, met with the president and created the remediation plan for Gee.
Comments by a university leader about "particular groups, classes of people or individuals are wholly unacceptable," said board of trustees Chairman Robert Schottenstein. "These statements were inappropriate, were not presidential in nature and do not comport with the core values of the university."
Gee repeatedly has gotten in trouble for offhand remarks, most recently during a memorabilia-for-cash and tattoos scandal under football coach Jim Tressel's watch.
Gee was asked in March 2011 whether he had considered firing Tressel. He responded: "No, are you kidding? Let me just be very clear: I'm just hopeful the coach doesn't dismiss me." Tressel stepped down three months later.
In November 2010, Gee boasted that Ohio State's football schedule didn't include teams on par with the "Little Sisters of the Poor." He later apologized to the real Little Sisters of the Poor in northwest Ohio, sent a personal check to them and followed up with a visit to the nuns months later.
Last year, Gee apologized for comparing the problem of coordinating the school's many divisions to the Polish army, a remark that a Polish-American group called bigoted and ignorant.
In 1992, in a moment of frustration over higher-education funding, Gee told a student newspaper reporter, "the governor's a damn dummy." Then-Gov. George Voinovich laughed it off, and the two became allies.
Gee was named the country's best college president in 2010 by Time magazine, and he has one of the highest-profile resumes of any college leader in recent history. He has held the top job at West Virginia, Colorado, Brown and Vanderbilt. He was Ohio State's president from 1990 to 1997 and returned in 2007.
He earns about $1.9 million annually in base pay, deferred and performance compensation and retirement benefits.
He is a prolific fundraiser and is leading a $2.5 billion campaign at Ohio State, one of the nation's largest universities. He is omnipresent on campus, attending everything from faculty awards events to dormitory pizza parties.
During his comments to the Athletic Council, Gee also questioned the academic integrity of the SEC and Louisville.
The top goal of Big Ten presidents is to "make certain that we have institutions of like-minded academic integrity," Gee said. "So you won't see us adding Louisville."
After a pause followed by laughter from the audience, Gee added that the Big Ten wouldn't add Kentucky, either.
When asked by a questioner how to respond to SEC fans who say the Big Ten can't count because it now has 14 members, Gee said: "You tell the SEC when they can learn to read and write, then they can figure out what we're doing."