Updated from 4:46 p.m. to include addition information parsed throughout the story.
Dorsey, who helped co-found the San Francisco-based Twitter nearly seven years ago, will remain CEO of Square, the payments company he started in 2009, while taking the interim CEO spot at Twitter. Dorsey will take over as interim CEO starting July 1.
"I am tremendously proud of the Twitter team and all that the team has accomplished together during my six years with the Company," Costolo said in a statement. "We have great leaders who work well together and a clear strategy that informs our objectives and priorities. There is no one better than Jack Dorsey to lead Twitter during this transition. He has a profound understanding of the product and Twitter's mission in the world as well as a great relationship with Twitter's leadership team. I am deeply appreciative of the confidence the Board, the management team and the employees have placed in me over the years, and I look forward to supporting Twitter however I can going forward."
Costolo will remain on Twitter's board of directors.
TheStreet's Jim Cramer welcomed Dorsey back to the top spot at Twitter.