He underwent an operation in July to try and rectify the problem, but his foot has not responded to treatment.
Greening, who played for Gloucester and Sale Sharks before joining Wasps, won 24 caps and was a key member of England's 1999 World Cup squad. He also travelled to Australia with the 2001 Lions, but suffered a tour-ending injury before the first game.
Greening's last appearance for England came in the 2001 Six Nations Championship game against Ireland, but he enjoyed further success with Wasps, helping them to European Cup glory, three Premiership titles and a European Shield triumph.
England coach Andy Robinson hailed Greening's "great service" to rugby following his retirement from the sport.
"Phil has given great service to England and the clubs he has played for," said Robinson. "His talent and enthusiasm always made him exciting to watch.
"He was returning to the form he had several years ago at the end of last season, and it is a blow for him, Wasps and England that his career has been cut short."
Wasps chairman Chris Wright also paid tribute to the hooker.
"Phil has been a great servant to the club during his time at Wasps," he said.
"He was always an exciting player to watch on the pitch, and great company off it. Phil also gave his time generously to Wasps' community department and a range of charities during his time at the club.
"His is a talent that will be sorely missed at Wasps and we wish him the best of luck for what he does for the future."
Wasps rugby director Ian McGeechan described Greening's retirement as "a significant loss" to the club.
"He is a class player who was at the top of his game at the end of last season. I was looking forward to working with him, and I am disappointed that this turn of events has denied us both that opportunity," he said.
"Phil's talent and experience will be a significant loss to the club. I am sure that Phil wants to stay in the game, and I want him to.
"He is the sort of person we need to stay in rugby, and I wish him the very best in whatever he chooses to do following his retirement."
Greening's retirement comes just a month after his fellow England international and former Gloucester front-row colleague Trevor Woodman retired due to a back injury.
Greening made his Test debut as a replacement against Italy in 1996, and although it took him almost three years to establish himself with England, his final 15 international appearances came as a member of the starting line-up.