Swede Lidstrom, a 12-time All-Star and seven-time Norris Trophy winner as top defenceman, spent his entire career with Detroit and became the first European to captain a Stanley Cup champion when the Red Wings won in 2008.
"At some point in time it catches up with everyone and diminishes their ability to perform, something you love and care about passionately comes to an end sooner than what you would've liked," the 42-year-old said during a news conference.
"The last three years I waited until after the season was over to assess my ability to play another year ... sadly this year it's painfully obvious to me that my strength and energy level are not rebounding enough for me to continue to play."
Lidstrom was taken by Detroit 53rd overall in the 1989 NHL Draft and went on to record 264 goals and 1,142 points in 1,564 career games spent entirely with the Red Wings.
He took over as Red Wings captain when Hall of Famer Steve Yzerman retired in 2006 and went on to lead Detroit to Stanley Cup Finals appearances in 2008 and 2009.
Lidstrom won the Conn Smythe Trophy in 2008, making him the first European to win the award given to the NHL's most valuable player in the playoffs.
He is sixth on the NHL's career scoring list for defencemen, 394 points ahead of the next active player on the list - 38-year-old Sergei Gonchar - who is in 20th place.