Ballack, who returned to Bayer Leverkusen in 2010 but was left without a contract after last season, had been linked with a possible move to the United States or Australia.
"At the age of 36 I can look back at a long and wonderful time in professional football which I did not dare dream of as a child," he said in a brief statement issued through his lawyers.
"It was a privilege to have worked with top coaches and fantastic team-mates. Obviously I will miss playing in front of 80,000 people or scoring a goal."
"A great footballer, known around the world, is ending his career," said Germany coach Joachim Low, who had repeated run-ins with the player over the years.
"I got to know and appreciate Michael as a pillar in the national team and a very good player with outstanding qualities. On the pitch he radiated dominance."
"Michael Ballack was an exceptional player who contributed greatly to lifting the position of the DFB [German football association] and German football as a whole," said DFB President Wolfgang Niersbach.
The team also lost that year's Champions League final to Real Madrid and to Schalke 04 in the German Cup final in a season that earned them the nickname "Neverkusen".
Low had first stripped him of the captain's armband and then dropped him from the team, with the federation offering him the chance of a farewell appearance in a friendly against Brazil in August which the player instantly declined.
Ballack's return to Leverkusen proved unsuccessful with the player sidelined with injuries or benched under former coach Robin Dutt.
"The last few months without football showed me that the time has come to stop. I now look forward to a new chapter in my life and thank my family and all the amazing people who brought me forward, accompanied me and supported me. They all share part of my success," Ballack said.
