The 37-year-old says the decision is based on the fact that he can no longer commit fully to the sport and would rather turn his attentions to a new career path.
"I have listened to and discussed this decision with many of my family and close friends. My mind has told me that the time to retire is now," said Thomas, who had only just battled back to fitness following a broken arm.
"If you can't give 100% to rugby then you can't do it justice. This is a sad day but I know that my time has come to an end as a player.
"I do not know what lies ahead, but I feel the challenge of something different excites me more than another year of rugby.
"I have great memories and great friends that I will keep for the rest of my life. I leave knowing I have done everything in my power to be the best person and player I could have ever been."
As well as leading the Lions, Thomas also skippered Wales to a first Grand Slam in 27 years in 2005 and won the Heineken Cup with French giants Toulouse that same year.
He became the first Welshman to reach 100 Test caps in a glittering union career that also saw him represent Bridgend, Cardiff, Celtic Warriors and the Blues before switching to league in March 2010.
He became a dual-code international later that year and guided Wales to a place in this month's Four Nations Series against England, Australia and New Zealand.
Thomas received plenty of plaudits off the field, too, after he became the first current rugby player to openly announce his homosexuality.
Following the demise of Super League outfit the Crusaders, Thomas had been linked with a high-profile and move to Wigan Warriors but that has now been put to bed.
Thomas could now focus on his media career after working for ITV during the recent World Cup but there has been no official news as to what his immediate plans will be.
"We can confirm that Gareth Thomas is officially retiring from both international and club rugby with immediate effect," said a statement from his agent Emanuele Palladino.
"This marks the end of... a remarkable career for a remarkable person.
"Gareth hopes that through his achievements both on and off the field he has left a lasting legacy within the game."