Gillies, 37, won England A honours in 2000 and has consistently been one of the leading line-out operators in the Aviva Premiership.
"It's been a difficult decision," said Gillies, who played for Bath, Richmond and Llanelli before joining Worcester in 2002.
"Physically I feel I could continue for a few more years. However, an opportunity has been presented to me to look to the future and it truly feels like the time is right for me to make this move.
"I have a health and nutrition business that is rapidly expanding and it is proving already to be hugely successful."
Dean Ryan, Worcester's new director of rugby, added: "The values that Craig has illustrated over his time at Warriors are the framework for others to follow.
"His attitude and application has been outstanding and he has been a role model for so many."
- Sports & Recreation
- Aviva Premiership