Costolo has been key to the social networking site’s increased commercial activities, including the roll out of Promoted Tweets and Promoted Trends.
Former chief executive of Feedburner, which as he sold to Google last year, Costolo invested $5m in Twitter back in 2007, before joining the firm in 2009.
Williams, who co-founded Twitter with Biz Jones, will remain with the company but focus on product strategy.
In a blog post on Twitter, Williams says: “Building things is my passion, and I’ve never been more excited or optimistic about what we have to build.”
In reference to Costolo’s part in Twitter’s success, he says: “During his year at Twitter, he has been a critical leader in devising and executing our revenue efforts, while simultaneously and effectively making the trains run on time in the office.”
Since Williams joined the company in 2008, the Twitter has grown from 20 staff to 300, and now handles 90m Tweets per day, compared with 1.25m two years ago. The site has 165 million registered user worldwide.
The company has been ramping up its commercial activities in recent months.
Last week it announced the introduction of Promoted Accounts, and is believed to be in talks with UK brands such as Sony and Virgin in an attempt to further its commercial activities outside the US.
Amanda Levy, director of sales at Twitter, said the company was also in the early stages of developing Twitter’s transactional capabilities.