"I'm embarrassed. I have taken responsibility for what I've done," he told reporters.
Dann had lived with two of the aides at an apartment during much of his first year in office and some of the alleged harassment by one of the aides occurred there.
"I did not create an atmosphere in my public and personal life that is consistent with the important mission of the Office of Attorney General ...," Dann said. "I am heartbroken by my failure to recognize the problems being created and by my failure to stop them."
Ohio GOP deputy chairman Kevin DeWine called for Dann's resignation, saying he turned the attorney general's office into a "raunchy frat pad."
Democratic Gov. Ted Strickland said the investigation showed a "double standard" with Dann staying while some employees were let go.
Dann, 46, said the affair was consensual and refused to disclose the name of the employee. He said the relationship came during a difficult time in his marriage, but that it "was wrong and I deeply regret it."
Dann's scheduler, Jessica Utovich, with whom he had a close relationship in which they often used profanity, nicknames and teasing when e-mailing each other, resigned voluntarily, said Tom Winters, first assistant attorney general. He did not give a reason.
When interviewed for the sexual harassment investigation conducted by assistant attorneys general, Dann said Utovich stayed overnight at an apartment he shared with the two aides for a variety of reasons that he would not discuss. During her interview, Utovich would not say whether she ever stayed overnight at the apartment during her interview.
Utovich and Dann's wife, Alyssa Lenhoff, did not immediately return messages seeking comment.
Both aides Dann lived with were fired after the results of the investigation were released Friday. Investigators found that Anthony Gutierrez, who led Dann's general services office, violated sexual harassment policy, and Leo Jennings, Dann's former communications chief, is accused of trying to get a worker to lie when interviewed under oath.
Investigators say Edgar Simpson, Dann's policy chief, was forced to resign for failing to address inappropriate behavior. Simpson had knowledge of Gutierrez's history of policy violations, the investigation report said.
Dann emerged into state politics as an appointed state senator with a small private law office, and became the face of the Democrats' charge against a scandal over state investments that contributed to the Ohio GOP's devastating election losses in 2006. He defeated a better known and more experienced Republican.
As Ohio's top law enforcer, he has taken on the nation's largest insurance brokerage, the mortgage lending industry, student loan providers, MySpace and the big three credit rating agencies, among others. His crime-fighting led to comparisons with New York's Eliot Spitzer, who became governor after he was attorney general and recently resigned in a prostitution scandal.
Dann had removed himself from the sexual harassment investigation.
Gutierrez was accused by two women he supervised -- Cindy Stankoski and Vanessa Stout, both 26 -- of making unwanted advances and vulgar remarks.
Stankoski said she went to the apartment near Columbus shared by Dann, Gutierrez and Jennings for pizza and drinks. She said she fell asleep drunk at the condo and when she awoke, her pants were unbuttoned and Gutierrez was lying next to her in his underwear.
When it was apparent Stankoski had too much to drink, arrangements should have been made to get her home, investigators said.
Stout alleged that Gutierrez repeatedly asked her for sex, suggesting she "owed" him for helping her land a state job.
The investigation also found that Gutierrez violated policies that prohibit driving under the influence of alcohol and drugs. The report detailed an incident where Gutierrez allegedly was drinking with other employees while driving a state vehicle.
The matter is now under investigation by the State Highway Patrol.
Rex Elliott, the attorney for Stout and Stankoski, said both women feel vindicated.
"There are questions that go all the way to the top of that office about how the leader of that office allowed this environment to persist," he said.
Messages left for Gutierrez's attorney, Sam Amendolara, were not immediately returned. No phone listing for Simpson could be found.
Dann is the third high-ranking official around the country to be marred by sexual scandal in recent months. Spitzer resigned abruptly in March after revelations that he had been a customer of a high-end call girl service. And Detroit Mayor Kwame Kilpatrick is charged with perjury, misconduct and obstruction of justice for accusations that he tried to hide a long-term romantic relationship with his former chief of staff.