"Over the past couple of weeks, myself and the club have had an opportunity to reflect on where the club was going and where I was going in the future," Wallace said at a press conference on Monday afternoon.
"I don't know where I am going in the future but one of the options that I thought was available to me in the future ... was in club land, to perhaps going to another club in a different role as a few of the senior coaches in the past few years have done.
"[Because of that] both the club and myself felt that it was almost untenable [for me] to stay in the role."
Wallace’s exit comes just days after his side's stirring win against Fremantle which also brought up his 500th game as player and coach.
The victory was just the team’s second in Wallace's final year of his five-year deal with the Tigers; a year which promised big things pre-season but instead has delivered a series of heartbreaking defeats.
Fittingly, Wallace's last game will be between the Tigers and the Bulldogs – the two teams he has coached at AFL level. The Tigers will not name their caretaker coach until after Friday night's game.
Richmond president Gary March gave a glowing tribute to Wallace's 32-year involvement at AFL level when he fronted the press at midday on Monday.
"After ongoing discussions last week and over the weekend, it was resolved last night that this week would be Terry's last game as senior coach of the Richmond Football Club," March said.
"This was a mutual decision, made in the best interests of all parties.
"It was the intention of Richmond and Terry for him to see out his contract.
"However, given the club has a number of important decisions to make over the coming months we all felt that it was appropriate that he finished this weekend."
March said Wallace would be remembered as a great innovator, citing the decision to warm-up players on the ground, flooding and allowing the cameras in for a behind-the-scenes look at the Bulldogs in 1997 as three examples.
"You never know what you get when you play a Terry Wallace-coached side," March said.
"Whether it be a crunch game, the uber-flood in 2000 against the Essendon Bombers or the ‘basketball crap’ game against a rampaging Adelaide at Telstra Dome.
"We sincerely thank him for his time at the Richmond Football Club."
Wallace played 174 games with Hawthorn, 11 with Richmond and 69 with the Bulldogs, collecting thee premierships with the Hawks along the way. Not overly quick, his hardness at the ball made him the best centreman of his time.
His playing days finished in 1991, and in 1996 he took the reins of the Western Bulldogs, a post he held until 2002. In 2005, he took over at Richmond, where he is the senior coach, having guided the team in 97 matches.
