The 72-year-old has led the judging panel since the show started 12 years ago.
He will be joined by fellow judges Darcey Bussell, Bruno Tonioli and Craig Revel Horwood for his final series, as well as presenters Tess Daly and Claudia Winkleman.
Goodman will not be retiring and will continue his shows on Radio Two.
He said: “In 2004, I was asked to take part in a brand new BBC Saturday night show and who would have thought me, old Len Goodman, would still be part of this amazing series more than 10 years on?
“This adventure began when I was 60 and now that I’ve reached my 70s, I’ve decided after this year it’s time to hand the role of head judge to someone else.
“It is an honour being part of the wonderful Strictly Come Dancing family and I’m looking forward to my last series very much and to whatever comes next.”
The BBC said it was too early to comment on any speculation about who would replace Goodman for the 2017 series.
Charlotte Moore, director of content at BBC, said: “After 12 years, our wonderful head judge Len has decided it’s time to hang up his Strictly Come Dancing shoes!”