Terry, 37, has been without a club since leaving Championship side Aston Villa in the summer.
The defender made the announcement on his Instagram account, saying: "After 23 incredible years as a footballer, I have decided now is the right time for me to retire from playing."
Terry, who earned 78 England caps, left Chelsea in 2017 after two decades at the London club.
He won five Premier League titles, five FA Cups and a Champions League title in his time at Stamford Bridge, becoming the club's most decorated player.
The centre-back also won five league cups and a Europa League in more than 700 appearances for Chelsea.
Terry spent the 2017-18 season at Aston Villa and his last game as a professional was the 1-0 Championship play-off final defeat to Fulham in May.
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In his Instagram post, Terry made a statement thanking his family for their support.
It read: "As a 14-year-old, I made my best and biggest decision: to sign for Chelsea Football Club. Words will never be enough to show how much everyone at the club means to me, in particular the fans.
"Right from the outset they have given me total support, on and off the pitch, and I have a tremendous bond with them.
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"My club career and heart will always belong to Chelsea, but I am grateful for my loan spell at Nottingham Forest in 1999, which was invaluable for my development as a young player.
"And I also want to say a huge thank you to Aston Villa for giving me the opportunity to play at such a big club and captain it throughout the 2017-18 season.
"It was a privilege to represent such a renowned football club with great fans.
"I look forward to the next chapter in my life and the challenges ahead."
Source: BBC
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