"Although I am still able to compete with the best drivers, at some point it is good to say goodbye," said the 43-year-old German.
"During the past month, I was not sure if I still had the motivation and energy which is necessary to go on. It is not my style to do something that I'm not 100% for.
"With today's decision, I feel released from those doubts. In the end, my ambition to fight for victories and the pleasure of driving is nourished by competitiveness."
Schumacher won 91 races in 19 seasons, helping to revive Ferrari's fortunes after he joined them in 1996.
He won his first title with Benetton in 1994 and repeated the feat the following year, before leaving for Ferrari. He claimed five straight titles between 2000 and 2004, before
retiring for a first time in 2006.
Andrew BensonChief F1 writer
"Schumacher in his pomp was undoubtedly one of the very greatest racing drivers there has ever been, a man who was routinely, on every lap, able to dance on a limit accessible to almost no-one else.
Sure, the competition in his heyday was not as deep as it is now, but Schumacher performed miracles with a racing car that stand comparison with the greatest drives of any era.
Victories such as his wet-weather domination of Spain in 1996, his incredible fightback in Hungary in 1998, his on-the-limit battle with Mika Hakkinen at Suzuka that clinched his first title in 2000 were tours de force. "
"We did not achieve our goals to develop a world championship-fighting car, but it is also very clear that I can still be very happy about my overall achievements in the whole time of my career," added Schumacher.
"In the past six years, I have learned a lot about myself. For example, that you can open yourself without losing focus, that losing can be both more difficult and more instructive than winning.
"Sometimes I lost this in the earlier years, though you appreciate what you are able to do and that you are able to live your convictions and I was able to do so."
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