The 34-year-old forward, who won 75 caps for Wales and won three grand slam titles, was told by doctors he risked significant damage to his shoulder if he carried on playing.
Jones, who made 147 appearances for Ospreys and was part of the British and Irish Lions squad that toured New Zealand in 2005, had been recovering from shoulder surgery after picking up his latest injury in May while playing for Bristol.
"This wasn't an easy decision for me to make, but there comes a time when I have to accept that my body is not able to cope with the rigours of professional rugby anymore," Jones said in a statement.
"I'm so proud to be able to say I captained Wales and played for the British Lions -- I've accomplished everything I wanted to in rugby."
(Reporting By Michael Hann; editing by Sudipto Ganguly)
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