The US company uses the UK firm's chip technology in its iPhones, iPads, and iPods under a licensing agreement.
Apple's royalty payments account for about half Imagination's revenues.
Shares fell 165p to 103p, valuing the company at about £250m - down from about £765m before the announcement was made on Monday morning.
Imagination said Apple, its largest customer, would stop using its products in "15 months to two years".
Apple is developing its own technology, but Imagination said this would be difficult without infringing patents.
Apple has told Imagination that it is "working on a separate, independent graphics design in order to control its products and will be reducing its future reliance on Imagination's technology".
Imagination, like the UK's ARM Holdings, is at the forefront of computer chip technology globally. ARM was sold last year to Japan's Softbank, a deal criticised as selling out of the UK's winners.
The Financial Times reported last year that Apple, which owns 8% of the UK company, had held talks about buying Imagination.
BBC :- http://www.bbc.com/news/business-39476898