The 44-year-old had a tumour removed from his throat in November 2011 before suffering a relapse last year.
Vilanova had surgery in December 2012 and spent 10 weeks in New York to have chemotherapy and radiotherapy before returning in March to see his side take the Spanish title.
The club said that a new manager is expected to be announced next week.
Barcelona President Sandro Rosell and director of football Andoni Zubizarreta announced the news at a brief media conference attended by the first-team squad.
Rossell said, "Tito Vilanova will continue treatment of his illness, he will not be able to continue as Barcelona's head manager.
"This is a very difficult blow to the club, but we have overcome many difficult setbacks."
Barcelona's friendly with Polish club Lechia Gdansk on Saturday night has been cancelled.
Vilanova replaced Pep Guardiola as manager in June 2012, having previously worked as his assistant.
Reports in Spain suggest Joan Ferrer, known as Rubi, could replace Vilanova in a caretaker capacity.
He joined Barca's coaching staff last month as an assistant to Vilanova and Jordi Roura, who took charge of the first team when Vilanova was absent last season.
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