The company is likely to seek a partnership with a conservation agency or a sustainable farming operation for the future management of Baitings, Turley Holes and Higher House Moor, near Hebden Bridge, and Lane Head near Holmfirth on the edge of the Peak District.
The futures of eight more Yorkshire Water-owned moors currently rented by grouse shoots are also up for review and their leases are unlikely to be renewed when they expire.
Yorkshire Water's decision comes after engineering firm NG Bailey opted to withdraw shooting rights on its Denton Moor estate in Wharfedale following several instances of wildlife persecution.
There is no suggestion that any Yorkshire Water tenants have been involved in wildlife crime.
Yorkshire Water committed to a phasing out of shooting tenancies following two years of talks with campaign group Wild Moors, formerly known as Ban Bloodsports on Yorkshire's Moors.
Founder Luke Steele said: "They have now opened a consultation on the future of these two moors. They want to restore peatlands and begin tree planting, so they are looking for conservation-minded tenants or progressive farmers. For several years now our campaign has focused on Yorkshire Water and persuading them to move away from grouse, and they have now adopted this as their official policy. The remaning tenants are waiting for the inevitable."
The grouse moors in the Calder Valley had come under particular scrutiny as their managment had been blamed for exacerbating issues with flooding in towns such as Hebden Bridge and Mytholmroyd. Many campaigners believe that increasing tree cover on the uplands and restoring absorbent vegetation will reduce the impact of deluges of rainfall on the steep-sided valley.
Wild Moors and Shooting Times both released data this week showing that red grouse numbers are poor this year due to the impact of climate change. Many estates in Yorkshire have historically low populations of the game bird after a wet spring and hot summer affected their food supply, and most have cancelled shoots as the sport is not commercially viable this season.
Mr Steele added that business-savvy estate managers would begin to consider shooting 'less relevant' as the value of naturally regenerated land began to rise, as predicted by the property industry.
"The world is fast moving in a direction where restoring land for nature, carbon capture and people is at the forefront of solving climate change and biodiversity loss. Today, no cutting-edge landowner would dream of allowing grouse shooting and Yorkshire Water is making waves by earmarking its moors for regeneration.
“We look forward to working with Yorkshire Water on its plans for nature-friendly moorland management."