The 38-year-old, with 112 test caps to his name, played his last test in 2015 when he produced a man-of-the-match display to help the All Blacks to victory over Australia in the World Cup final.
The Canterbury first-five was also part of the New Zealand team that won the 2011 edition of the tournament, though he missed the final after tearing his groin tendon.
He leaves the game as the highest point scorer in test rugby with 1598, more than 350 points clear of England's Jonny Wilkinson.
"I officially retire from professional rugby today," Carter wrote on Twitter.
"A sport I've played 32 years which has helped shape me into the person I am today. I can't thank everyone who has played a part in my journey enough, particularly you, the fans.
"Rugby will always be a part of my life."
Carter debuted for Canterbury in 2002, with an All Blacks debut soon following in 2003 in a win over Wales in Hamilton.
He was also a standout at Super Rugby level with the Crusaders, who he made 141 appearances for.
Carter was named International Rugby Player of the Year three times, equalling the record held by longtime team mate and skipper Richie McCaw.
After his international retirement, he enjoyed a three-year spell with Racing 92 in Paris followed by two seasons with the Kobe Steelers in Japan. He returned to New Zealand last year for a brief stint with the Blues.
Carter told the NZ Herald he no longer had the motivation to push himself as hard as necessary to be competitive in New Zealand rugby.
"I play to be the best player out on the field," he said. "That is my drive and it always has been and I just didn't have that drive back here in New Zealand."