The 37-year-old left-arm paceman, who was part of India's 50-overs World Cup winning team in 2011, last played for his country in a test match in New Zealand in February last year.
"As I was training for the upcoming season, it dawned on me that my shoulder may not last the rigours of bowling nearly 18 overs a day, and that's when I knew it was time," Zaheer said on his official Facebook page.
"With immediate effect, I bid adieu to my career in international cricket. I look forward to signing off my last season in domestic cricket at the conclusion of Indian Premier League season nine."
Zaheer, who played the first of his 92 tests against Bangladesh in 2000, has been hampered by injuries in recent years.
He took 311 test wickets and 282 in one-day internationals, the fourth highest totals in both formats for India. He is the second-most successful Indian seamer in tests behind Kapil Dev, who took 434 wickets.
"Cricket has been my only life over the past two decades and is in fact ... the only thing I know well," Zaheer added. "Cricket has made me the individual I am, giving me everything in life and much more.
"I walk away with fantastic memories, life defining experiences and great friendships."
While India's pitches are traditionally tailor-made for batsmen and mostly assist spinners, Zaheer burst onto the scene with a penchant for swinging the ball both ways and a potent yorker.
Over the years he also mastered the art of reverse swing, a must-have for fast bowlers in the subcontinent.
He inspired India to their World Cup win four years ago, a feat he counts as his greatest cricketing moment. Zaheer took 21 wickets in the tournament, finishing joint highest wicket-taker with Pakistan all-rounder Shahid Afridi.
"The BCCI appreciates Zaheer Khan's outstanding service to Indian cricket," Shashank Manohar, the president of the Indian Cricket Board (BCCI) said in a statement. "He served Indian cricket with remarkable passion and commitment.
"Being a fast bowler in the Indian sub continent is challenging but he led the bowling attack with distinction and contributed significantly to the success of Indian cricket."
(Reporting by Sudipto Ganguly; editing by Peter Rutherford)
