The 37-year-old, who had retired from Twenty20 internationals after Sri Lanka's title-winning campaign in the World T20 in April, will now play only one-day cricket heading into next year's World Cup.
Sri Lanka's President Mahinda Rajapakse was among the 4,000 home fans who turned up at Colombo's Sinhalese Sports Club (SSC) to bid goodbye to one of modern cricket's great batsmen.
The elegant right-hander is one of only five batsmen to score more than 11,000 runs in both Test and one-day cricket -- the others being Sachin Tendulkar, Ricky Ponting, Jacques Kallis and team-mate Kumar Sangakkara.
He was lifted onto the shoulders of his team-mates as the entire squad did a victory lap of the ground. On his return to the pavilion, Jayawardene was hugged warmly by Rajapakse and other dignitaries.
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It was at the SSC that Jayawardene scored a monumental 374 during a world-record partnership of 624 with Sangakkara (287) against a South African attack that included Dale Steyn and Makhya Ntini in 2006.
Jayawardene looked good to continue for a few more years after making a fluent 165 against Hashim Amla's South African team at the SSC last month.