Northern Ireland minister Shaliest Vara and Brexit minister Suella Braverman have also resigned.
Parliamentary aides Ranil Jayawardena and Anne-Marie Trevelyan have also quit as crisis rocks Number 10
Tory backbenchers are also reportedly plotted a vote of no confidence in the Prime Minister – spearheaded by Jacob Rees-Moggs powerful Brexiteer cabal the European Research Group.
Mrs May has sparked fury after pushing her draft withdrawal agreement through Cabinet yesterday – saying Britain has three options, her deal, no deal, or no Brexit.
“I cannot defend this, and I cannot vote for this deal. ”
Announcing her resignation on Twitter McVey wrote: "The British people have always been ahead of politicians on this issue, and it will be no good trying to pretend to them that this deal honours the result of the referendum when it is obvious to everyone that it doesn't.
"We have gone from no deal is better than a bad deal, to any deal is better than no deal.
"I cannot defend this, and I cannot vote for this deal. I could not look my constituents in the eye were I to do that.
"I therefore have no alternative but to resign from the Government."
PRIME MINISTER: Can Theresa May survive this latest rebellion over Brexit? (Pic: PA)
The developments threaten to derail the Prime Minister's Brexit strategy ahead of a crucial EU summit on November 25.
And there are just over four months to go until the UK is due to leave on March 29.
They came shortly before Mrs May was due to set out the details of the withdrawal agreement to MPs in the House of Commons, in what is expected to be a bruising clash with some of her fiercest critics.
Labour said the Government was "falling apart before our eyes" and the pound dropped sharply after Mr Raab's resignation.
RESIGNED: Esther McVey quit after a tense stand-off with the PM at Cabinet (Pic: GETTY)
BREXODUS: Dominic Raab quit his role as Brexit secretary – becoming the biggest scalp to resign (Pic: GETTY)
In his letter to the Prime Minister, Mr Raab said the deal represented a "very real threat to the integrity of the United Kingdom" because of provisions for Northern Ireland.
He also said he could not accept "an indefinite backstop arrangement" for the Irish border.
He said: "No democratic nation has ever signed up to be bound by such an extensive regime, imposed externally without any democratic control over the laws to be applied, nor the ability to decide to exit the arrangement."
Ms McVey, who was promoted to the Cabinet by Mrs May in January, was reported to have been close to tears as she tried to force a vote on the Brexit deal in Wednesday's Cabinet.
END OF MAY: Theresa May has remained defiant as she pushed through a Brexit deal (Pic: PA)
Addressing MPs in the House of Commons, Theresa May paid tribute to Raab and McVey amid rumours of further resignations.
Mrs May said: "Delivering Brexit involves difficult choices for all of us. We do not agree on all those choices, but I respect their views.”
Mrs May said: "I do not pretend that this has been a comfortable process, or that either we or the EU are entirely happy with some of the arrangements which have been included in it.
"But of course this is the case. This is an arrangement that we have both said we never want to have to use."
BRUSSELS: Donald Tusk looks pleased with Theresa May's EU withdrawal plan (Pic: AFP)
The resignations came as European Council president Donald Tusk announced an extraordinary meeting of EU leaders in Brussels on November 25, at which the withdrawal agreement and a political declaration on future relations is due to be finalised and formalised.
Westminster is braced for further resignations, amid widespread expectations that the Prime Minister may face a challenge to her position from Conservative MPs submitting letters of no confidence in her leadership.
As the UK's ministerial point man in negotiations he made repeated trips to Brussels for talks with EU negotiator Michel Barnier as he and civil servants tried to hammer out a workable withdrawal agreement.
The pound fell heavily against most major currencies after his resignation. Sterling dropped 1.1% to 1.28 US dollars and was 1.2% lower at 1.13 euros.