The 17-year-old Blackpool forward made the announcement in a statement on the Championship club's website.
"Off the pitch I've been hiding the real me and who I really am," he said. "I've known my whole life that I'm gay, and I now feel that I'm ready to come out and be myself.
"It's a step into the unknown being one of the first footballers in this country to reveal my sexuality, but I've been inspired by Josh Cavallo, (non-league manager) Matt Morton and athletes from other sports, like (diver) Tom Daley, to have the courage and determination to drive change."
Daniels, who recently made his first-team debut for the club, said he had confided in his teammates in the youth team, who had supported him.
"I've hated lying my whole life and feeling the need to change to fit in," he said. "I want to be a role model myself by doing this.
"There are people out there in the same space as me that may not feel comfortable revealing their sexuality. I just want to tell them that you don't have to change who you are, or how you should be, just to fit in."
Former Norwich and Nottingham Forest striker Justin Fashanu came out publicly as gay in 1990, during his playing career.
A-League player Josh Cavallo, who plays for Adelaide United, announced he was gay in October.
Former Aston Villa and Germany midfielder Thomas Hitzlsperger came out after his career ended, while ex-Leeds defender Robbie Rogers revealed he was gay in 2013 after leaving Elland Road and before joining LA Galaxy.
Hitzlsperger tweeted: "Well done @Jake_Daniels11 Have a wonderful career! Great to see the support of @BlackpoolFC and @stonewalluk to make this possible!"
As tributes poured in from across the world, British Prime Minister Boris Johnson led the praise for Daniels.
"Thank you for your bravery, Jake. It would have taken huge courage to come out and you will be an inspiration to many both on and off the pitch," Johnson said.
Former Manchester United defender Rio Ferdinand tweeted: "Massive respect for this brave decision. Let's all help create a safe and supportive environment for LGBTQ+ people in football and beyond!"
Gary Neville, a former teammate of Ferdinand at United, added: "What he (Daniels) has just done takes incredible courage.
"I can't imagine how difficult that has been. All I would say is it's a day of great importance for Jake and his family, but also for English football. It will go down in history. It is a big moment for football."