Schnatter confirmed the allegations in a statement Wednesday and apologized for his use of "inappropriate and hurtful language". During the call, he reportedly said "Colonel Sanders called blacks n--" and never faced backlash.
And the gym at the university, for which he gave nearly a million dollars, will be stripped of his name.
The company said it would begin its search for a new board chairman.
Schnatter has a history of making political statements that have sparked controversy. Schnatter then went on to mention that where he grew up in IN, people used to drag African Americans from trucks until they died.
Shortly after Schnatter's departure, Papa John's executives said the company would overhaul its marketing campaigns and place an increased focus on digital sales efforts amid tough competition from Domino's and Pizza Hut.
Papa John's founder John Schnatter arrives at the American Music Awards in Los Angeles in 2011. But its owner, Casey Wasserman, terminated the company's contract with Papa John's, according to reports.
Schnatter apologized for the remarks Wednesday.
The conference call with a media agency in May came just months after Schnatter landed himself in hot water for controversially saying the NFL national anthem protests were to blame for its sagging pizza sales.
Yum Brands Inc's Pizza Hut replaced Papa John's as NFL's sponsor in February, ending Papa John's eight-year relationship with the top United States football league.