The 33-year-old, who won 79 Test caps, helped England to three Ashes series victories between 2009 and 2013.
The Sussex keeper has not played any cricket since July 2014 because of a recurring Achilles tendon injury.
"I was expecting to be fit for the 2015 season," Prior said. "Unfortunately, this has proved impossible, and I have now had to reach this decision."
He added: "I feel honoured to have played for Sussex and England as many times as I have and shared so many great times with both teams. I also feel privileged to have been involved in an era of such success for English cricket.
"I have always tried to play with pride and passion and have a deep belief that the team will always come first. Although I haven't achieved all the goals I had set out to, I feel immensely proud of what I have done in my career. Sadly it is now time to move on."
Prior became the first England wicketkeeper to score a century on debut, hitting an unbeaten 126 at Lord's against West Indies in 2007.
He leaves the game with a Test batting average of 40.18, the highest of any England wicketkeeper to claim more than 100 dismissals and the fourth best of all-time behind only Kumar Sangakkara, Andy Flower and Adam Gilchrist.