Katich, who was ousted from the team after the 2010-2011 Ashes series defeat, was relieved of the New South Wales captaincy last year in the Sheffield Shield competition.
The 36-year-old, who is currently playing for Hampshire in the English County competition, played 56 Tests for Australia, scoring 4188 runs at an average of 45.03.
He had a controversy-ridden ouster from the team when he said that his strained relationship with current captain Michael Clarke was decisive in his axing from the side.
Katich has amassed 19,667 first class runs.
"With a young family and a desire for an extended time at home, Simon has decided it is time to reassess his priorities," said a statement released by Cricket Australia.