The 37-year-old central defender announced his decision on Sunday as he prepares to pursue a career in management.
“After 23 incredible years as a footballer, I have decided now is the right time to retire from playing,” Terry said in a message posted on his Instagram page.
Terry, who spent the bulk of his career with Chelsea, captained second-tier Aston Villa last season.
The Birmingham club reportedly wants him to join their coaching staff as part of a new-look set-up, with Thierry Henry in the running to take over as manager at Villa Park after Steve Bruce was sacked earlier this week.
Terry’s last game as a professional was Villa’s 1-0 Championship play-off final defeat by Fulham in May, a loss that denied Villa a return to the Premier League.
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