The article suggests that the choice was made at the director’s discretion and that he informed Marvel Studios of his decision this morning. Though Favreau’s reasoning is purely speculatory at this stage, it is likely that the director simply wishes to pursue other creative ventures. With the upcoming Cowboys & Aliens hitting next summer and The Magic Kingdom in the early planning stages, Favreau should remain suitably busy for the time being.
UPDATE: It’s been confirmed that Favreau is not returning for the third movie. Favreau posted the following on his Twitter account: "It’s true, I’m directing Magic Kingdom, not Iron Man 3. I’ve had a great run with Marvel and wish them the best."