The 29-year-old former Liverpool forward has struggled to regain full fitness since damaging his knee against MK Dons in 2011 and has decided to quit following medical advice.
"I have agreed to keep lines of communication open with Graham Westley just in case I come across a miracle cure, but realistically and regrettably, this is the end of my playing days," said Mellor.
Preston manager Westley added: "The team's record without Neil this season says everything about the man and character that he is. I'm gutted that I didn't get the chance to work with him beyond his cameo against Bury.
"He has had a tough decision to make, but he has no real choice in the matter. Everybody here will wish him the very best."
Mellor started his career at Liverpool and made 21 appearances after making his debut against Ipswich at Anfield in December 2002. He signed for Preston in the summer of 2006 after loan spells at West Ham and Wigan and made his last appearance for North End as a late substitute against Bury in March.