Sir Michael was revealed this week to have “repeatedly” touched the knee of radio host Julia Hartley-Brewer 15 years ago.
Downing Street announced this evening that Sir Michael had resigned as Defence Secretary.
The Sevenoaks MP admitted his past behaviour may have “fallen short” of expected standards.
Announcing his decision in a letter, he said: "In the past I have fallen below the high standards that we require of the armed forces that I have the honour to represent.Related articles
GETTYSir Michael Fallon has resigned
"I have reflected on my position and I am therefore resigning as Defence Secretary."
In her reply to Sir Michael's resignation letter, Prime Minister Theresa May said: "I appreciate the characteristically serious manner in which you have considered your position, and the particular example you wish to set to servicemen and women and others.
Ms Hartley-Brewer tweeted this evening: “Bloody hell. Sir Michael Fallon has just resigned as Defence Secretary.
“#Kneegate (although I doubt my knee was the reason).”
She had previously said Ms Hartley-Brewer said she threatened to punch the married father-of-two if he carried on his inappropriate behaviour.
The Tory veteran has been caught up in the sexual harassment scandal sweeping Westminster after it emerged he had put his hand on the journalist's knee during a dinner.
Mr Fallon’s resignation letter stated: “A number of allegations have surfaced about MPs in recent days, including some about my previous conduct.
TWITTERJulia Hartley-Brewer tweeted
But, in a statement this week, she said she regarded the incident, which occurred at a party conference dinner, as "anything but mildly amusing”.
The radio host told Sky News this evening she was "incredibly shocked" by the resignation and branded it "ridiculous".
“Many of these have been false but I accept that in the past I have fallen below the high standards that we require of the armed forces that I have the honour to represent.
“I have reflected on my position and I am therefore resigning as Defence Secretary.
GETTYMichael Fallon has resigned as Defence Secretary
“It has been a privilege to have led defence over the past three and a half years.”
He went on: “We are close to defeating Daesh terrorism in Iraq and Syria; we have taken a leadership role in