Sheepshanks has held the position of Chairman of the club for 14 years following the resignation of John Kerr following Town's relegation from the Premiership in the 1994/1995 season. Last year Sheepshanks stepped down as executive Chairman to take on a non-executive part time role at the club.
The former Eton schoolboy will remain on the Town board as a standard director, allowing him to continue on the FA and Football League board, also continuing as chairman of Ipswich Town Plc and the Ipswich Town Community Trust.
Town owner Marcus Evans will take on the role of Chairman following the departure of Sheepshanks, which completes a complete reshuffle of Town's three most high profile roles, with a new manager Roy Keane, new Chairman (Evans) and new Chief Executive (Simon Clegg) being appointed in the last month.
Speaking of Sheepshanks' departure, new Chairman and Owner Marcus Evans said: "I would like to thank David for his help over the last 16 months since I became involved with the Club and for his many years dedicated service.
"He has faced many challenges as Chairman and assisted the Club to great highs and equally, never shirked responsibility when faced with tougher times.
"I am delighted that he has agreed to continue as a director of the Club, where he will continue to provide valuable advice to the board in relation to Club and wider football matters."
Sheepshanks himself said of his departure: "The Club has now entered a new era with Marcus Evans, Simon Clegg and Roy Keane at the helm and I feel it is the right time for me to step down as Chairman of the Club board.
"I am pleased that Marcus will succeed me as he strives to get Ipswich Town back to the Premier League. My experience within football will be made available to the Club and the board at all times."
Click here to see Sheepshanks and Matt Holland celebrate promotion in the 1999/2000 Play-Off Final.