The 32-year-old has made the decision on medical advice.
Ikeme was diagnosed with acute leukaemia a year ago. After prolonged treatment he recently revealed he was in remission.
He said today: “I spoke with the doctor and he suggested I should retire, because of the toll the treatment has taken on my body.
“He thinks it’s what is best for me and I can’t really risk trying to come back, my health is the priority.
“I want to be here for my children, family and friends.
“In the grand scheme of things with your life in danger it’s the minimum price I have to pay to spend the rest of my time with my family.”
Ikeme may now continue to work with the club in a behind-the-scenes capacity.
He added: “There’s nothing concrete I want to do. In the near future I’ll come to games and catch up with people.
“I’m definitely going to enjoy being around the club, experiencing the good and bad times, but I’ll definitely be in and around the club.”
Wolves executive chairman Jeff Shi said: “Having been at the club since the age of 14, Carl is far more than just a player in our eyes – he is our brother and an important part of our family.
“When Carl came to tell us his news, yes there was sadness, but also great happiness to see him so healthy and hungry for the opportunities that lay ahead of him.
“Carl is strong, a fighter, something he has proven in his playing career and also during what has been a very challenging time for him, so I have no doubt he will be a success in whatever he does next.
“We wish Carl all the very best for the future, but remind him he will always remain a part of the Wolves family.”