It comes after the company rejected a $23bn takeover bid from rival Mondelēz International earlier this year.
Bilbrey will vacate his current position on July 1, 2017. Hershey has begun the search for his successor.
2016 forecast maintained
The company has reaffirmed its outlook for the full year specified in its Q2 results and continues to expect 2016 net sales to increase around 1%.
This was a downgrade from its 1.5% growth forecast made when announcing its Q1 results in April.
Bilbrey – who became CEO in May 2011 - said it had been a difficult decision, but he wanted to spend more time with his family.
He has been with Hershey 13 years in various roles including COO and president, North America. Before joining Hershey, he held positions at Danone, Mission Foods and Proctor & Gamble.
The Hershey Board has appointed a special committee to search for the new CEO, led by the chair of Hershey's governance committee Pamela Arway.
The committee will explore internal and external candidates with help from executive search firm Egon Zehnder.
Bilbrey's departure comes as the Hershey Trust - which has 80% voting rights in Hershey – is facing change.
Earlier this year, the Trust said five of nine board members would step down by 2018 under an agreement with the Pennsylvania Office of Attorney General (AG).
It followed criticism of spending patterns by board members. The Board will consist of at least 13 members under the AG deal.
Bilbrey is not a Trust board member, but is non-executive chairman of The Hershey Company board.