The 35-year-old affable pacer, who retired from Test cricket in 2010, had been most recently laid low by a calf injury. He will, however, continue to play in Australia's Twenty20 Big Bash and the Indian Premier League.
Lee, a part-time bass guitarist who enjoys a huge fan-base in India, said he could not carry on anymore given the suffering his body has endured.
"I guess you ask yourself a lot of questions when you've been injured or been through a tough time. It's been the last two or three nights I have thought about it a lot. I woke up this morning and I knew this was the right day to do it," Lee told reporters at the Sydney Cricket Ground.
"In a team environment you have to be committed 100 per cent, both mentally and physically. Looking at the next two months I just didn't have that desire any more.
"It wouldn't be fair on me or the rest of the team if I was to go over there with that attitude - not lack of commitment, but you just get to a point in your life when you decide enough is enough," he said.
Lee had initially planned to retire after the upcoming World Twenty20 tournament in Sri Lanka.
Rated among the fastest bowlers in modern era, the ever-smiling six-footer took 380 wickets in 221 one-day internationals and 28 wickets from 25 Twenty20 appearances for Australia.
Lee said he was happy to have played "in a fantastic era, playing with the likes of Shane Warne, Glenn McGrath and Adam Gilchrist, Steve and Mark Waugh, heroes of mine growing up".
"It's now stage two of my life coming up so I'm pretty happy and pretty excited. My holiday will be at home, I'm sick of being away." MORE
