The 170-year-old tabloid newspaper - the biggest Sunday newspaper in the world - will be published for the last time on Sunday.
The Murdoch, the son of Rupert Murdoch, said in a statement: “Having consulted senior colleagues, I have decided that we must take further decisive action with respect to the paper. This Sunday will be the last issue of the News of the World.”
The newspaper was collapsing in on itself following day after day of shocking allegations journalists hacked the phones of everyone from murdered schoolgirls to the families of Britain's heroic war dead.
Senior staff were openly rebelling against the leadership of former editor and now News International boss Rebekah Brooks was handling the scandal.
Some media observers said it looked like Rupert Murdoch preferred to sacrifice the newspaper rather than his chief executive Mrs Brooks.
The scandal was also threatening to block Murdoch's takeover of satellite broadcast BskyB.
The move opens the way for a seven-day Sun newspaper which it is believed News International has been planning for some time.
Mrs Brooks gathered all the News of the World staff and told them: 'The Guardian newspaper were out to get us, and they got us.'
The Guardian newspaper was credited with spearheading the bid to uncover wrong-doing at the News of the World.
The dramatic development comes as Scotland Yard said there were more than 4,000 potential phone hacking victims.