De Grandhomme was drafted by Jason Gillespie's Adelaide Strikers in the Big Bash League draft, surprising Kiwi cricket chiefs and prompting talks on the 36-year-old's career, given the BBL season clashes with New Zealand's tour of Pakistan.
On Wednesday, New Zealand Cricket (NZC) announced it had agreed to release him from his central contract, bringing the curtain down on his time with the Black Caps.
"While it's sad to see him go we appreciate he's at a stage in his career where he's looking to head in a different direction and we respect that," coach Gary Stead said.
De Grandhomme follows fellow stalwart Trent Boult, cricket's No.1-ranked ODI bowler, who walked away from his central contract last month.
The situation of Melbourne Stars pickup Boult is slightly different, as NZC have left the door ajar for the 33-year-old to play in the T20 World Cup in Australia later this year.
De Grandhomme won the inaugural World Test Championship final last year with the Black Caps and played in New Zealand's last Test series with England until a heel injury curtailed his tour.
The Zimbabwean-born cult hero last played T20 cricket for New Zealand a year ago and said "this is the right time to finish".
"I accept I'm not getting any younger and that the training is getting harder, particularly with the injuries," he said.
"I also have a growing family and am trying to understand what my future looks like post-cricket. All of this has been on my mind over the past few weeks."
De Grandhomme amassed 1432 Test runs at 38.70 and took 49 wickets at 32.95 in his 26 Tests, also helping New Zealand to the 2019 ODI World Cup and the world No.1 50-over ranking.
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