Lutz Bachmann, 41, had appeared on the front page of top-selling daily newspaper Bild on Wednesday sporting a Hitler moustache and haircut.
Bild and another paper said he had called asylum seekers "animals" and "scumbags".
Kathrin Oertel, another PEGIDA co-founder and current leader, said his resignation had nothing to do with the Hitler photo but was linked to comments posted on the internet.
"Yes, I can confirm that Lutz Bachmann has offered his resignation and it was accepted," Ms Oertel said.
Mr Bachmann, who denied he was a racist, was told he faced a criminal investigation for inciting racial hatred.
State prosecutors in Dresden said preliminary proceedings had been launched following the Bild report.
Bild printed the photo of Mr Bachmann with Hitler-style moustache and hair on its front page.
It quoted him as having said the photo had been taken as a joke, prompted by a recent satirical book about Hitler called Er Ist Wieder Da (Look Who's Back).
The Dresdner Morgenpost newspaper also quoted what it said were Facebook messages from Bachmann saying asylum seekers acted like "scumbags" at the welfare office and that extra security was needed "to protect employees from the animals".
Deputy chancellor Sigmar Gabriel, the Social Democrat leader, said the real face of PEGIDA had been exposed.
"Anyone who puts on a Hitler disguise is either an idiot or a Nazi," Mr Gabriel said.
22 January 2015 - 06:42
News ID: 666316
The leader of the fast-growing German anti-Muslim movement PEGIDA has resigned after a photo of him posing as Hitler...
