Embalo, 51, was elected in January 2020 to succeed former president Jose Mario Vaz.
He defeated runner-up Domingos Simoes Pereira with 54% of the vote and would have been eligible for another term in office.
The unexpected announcement could trigger a power vacuum and heighten political instability in the coup-prone country of around two million people.
At the end of a council of ministers on Thursday night, Embalo said his wife had dissuaded him from running again.
He said his successor would not be Pereira nor two other opposition politicians, Braima Camara and Nuno Gomes Na Bian, without elaborating further or naming a successor.
Embalo, an ex-army general who served as prime minister under Vaz, inherited a long-running political impasse in a country where coups and unrest have been common since independence from Portugal in 1974.
There were two attempts to overthrow him during his presidency, according to Embalo, the latest in December 2023.
He dissolved parliament days later for the second time since he came to power.
Legislative elections that followed after the first time Embalo dissolved parliament, in May 2022, quashed his plans to push through a constitutional change that would have allowed him to consolidate power by ridding the country of its semi-presidential system.
Under the current political system, the majority party or coalition appoints the government.
But the president has the power to dismiss it in certain circumstances, often leading to political deadlock and turmoil.
The country also emerged as a major cocaine trafficking hub in the 2000s, according to experts.
Police on Saturday seized 2.63 tons of cocaine found on an airplane that arrived from Venezuela.
