The former chief executive, who ran the Post Office while it routinely denied there was a problem with its Horizon IT system, was appointed a CBE in December 2018.
It comes after demands for her to return the honour intensified after an ITV drama returned the widespread miscarriage of justice to the spotlight.
A petition calling for her to be stripped of the CBE had reached more than one million signatures earlier this week.
In a statement announcing her intention to return the honour, Ms Vennells said: “I continue to support and focus on co-operating with the Inquiry and expect to be giving evidence in the coming months.
“I have so far maintained my silence as I considered it inappropriate to comment publicly while the Inquiry remains ongoing and before I have provided my oral evidence.
“I am, however, aware of the calls from subpostmasters and others to return my CBE.
“I have listened and I confirm that I return my CBE with immediate effect.
“I am truly sorry for the devastation caused to the sub-postmasters and their families, whose lives were torn apart by being wrongly accused and wrongly prosecuted as a result of the Horizon system.
“I now intend to continue to focus on assisting the Inquiry and will not make any further public comment until it has concluded.”
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