After four knee surgeries, "my body is begging me to stop the pounding", the tennis star wrote.
The Chinese Tennis Association thanked her for the "shining moments" she had given to the sport.
Li is one of China's most high-profile athletes and a national hero.
She is well-known for her outspoken independence, her humour and her reluctance to embrace the state-run training system.
She won the Australian Open in January2014 to add to her 2011 French Open title, but the world number six has not played since losing in the third round at Wimbledon in June 2014
During her career, she won nine WTA events, including the two grand slam titles, and reached number two in the world rankings.
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