The party will hold a secret ballot of its MPs this week to choose Waters' successor, following her resignation announced on Monday night. Waters said she had been "quietly managing chronic kidney disease alongside doing the work I love", but "recently it's taken a downturn, and I need to be honest with myself about not being invincible".
"My doctors have been clear: my prospects for recovery are good, but the best path forward means a slower pace of life than leading a political party allows," she said in a statement.
Waters, who led the party for just over 15 months, said she was "really sad that illness means my time as leader has been cut short".
"But our movement needs a leader in good health to lead us to success at the next election," she said.
"Passing the torch on to the next leader of the party will put them in the best position to take the Greens to the next election, fighting for people, not the corporate interests that run Labor, Liberals and One Nation."
She said her prognosis for recovery was positive, but the leadership role, including extra travel, was no longer compatible with her health needs.
Waters took on the leadership at a tumultuous time for the Greens. Former leader Adam Bandt lost his previously safe seat of Melbourne at the last election, and the party also lost Max Chandler-Mather's seat in Brisbane, leaving it with only one lower house seat. Senator Dorinda Cox defected to Labor, and the Greens lost influence in the Senate as Labor strengthened its numbers.
Despite those losses, Waters said the party had achieved significant wins while holding the balance of power in the Senate, including changes to environmental law reform and gun reform. The Greens' primary vote has remained steady since the election, according to reports, as voters have shifted towards One Nation.
Because Waters plans to return to the Senate after her medical leave, her resignation as leader does not open a Senate vacancy.