"It's with great sadness that I have discovered that I'm a dual citizen and I'll be forced to stand down from my position in the Senate," said Waters who holds both Australian and Canadian citizenship.
Australia's constitution bars anyone "who is under any acknowledgment of allegiance obedience or adherence to a foreign power, or is a subject or a citizen or entitled to the rights or privileges of a subject or a citizen of a foreign power" from serving in Parliament.
Waters said she'd renounce her Canadian citizenship but did not answer what's next for her career.
"I'm not too sure what the future holds for me. It's a discussion I'll have with my party and of course my family," she said at her news conference.
Waters was prompted to investigate her citizenship status after fellow Greens party member and deputy co-leader Scott Ludlam announced he was resigning after learning he held dual New Zealand-Australian citizenship. His family left New Zealand when he was 3 years old and moved to Australia before he turned 9.
"This was my error, and I should have checked," Ludlam said in a statement Friday. "I am personally devastated to learn that an avoidable oversight a decade ago compels me to leave my colleagues, supporters and wonderful team."
Ludlam reacted to Waters' reaction on Twitter, saying he was proud to have worked with her.
The Greens held nine seats of the 76 in the Australian Senate and one of 150 in the Australian House of Representatives before the resignations.
Richard Di Natale, the leader of The Greens, said he was "gutted" by Waters' announcement and that Australia is worse off as a result of both resignations.
The party will conduct a review following the incident, he said.
The Greens are unlikely to lose their seats in the Senate due to the resignations, according to George Williams, dean of the University of New South Wales School of Law.
Williams told CNN the High Court will likely disqualify Waters and Ludlam and call for a ballot count-back, which would give the number two person on the ticket from their party the seat.
"It's not likely that the total number off Greens will change, just that we'll see people from their party replacing them," said Williams.
But the resignations of two rising political stars raises questions about what's next for the party, said veteran Australian political journalist Barrie Cassidy.
Many Australian lawmakers have taken to social media to assure constituents they will not be disqualified.
Sen. Sam Dastyari, who was born in Iran, said Tuesday that he personally spent AUS $25,000 (nearly $20,000) on legal fees to ensure he met the rules.
"It's a very real issue for a large number of parliamentarians," said Williams.
"We need a disqualification provision that's more reflective of today's community, not (the community) from more than 100 years ago," Williams told CNN.
That diversity means it's possible many, like Waters, have citizenship conferred upon them that they don't know about.
Reform has been "recognized as a common-sense thing to do and Parliament has looked at this in the past and seen the need for reform and never got around to it. And now they're paying the price," said Williams.
"In the end, if you don't make changes to a document that's out of date, you have problems," he said.