The former world No.3 - who reached the final of the Australian Open in 2020 - has struggled for form since suffering a wrist injury in 2021 that sidelined him for months.
Thiem, twice a French Open finalist, said in January this season was his last chance to get back to playing at a level he expects of himself and climb back up the rankings.
"It is a very important, very sad, very beautiful message that this season will be my last one," Thiem, who won at Flushing Meadows in 2020, posted on Instagram.
"There are some reasons behind it: firstly, of course, my wrist. It is not exactly the way it should be and how I want it.
"The second reason is my inner feeling: I have been thinking about this decision for a very long time.
"I've had success and trophies which I never dreamt of. It was an incredible journey.
"In the end I came to the conclusion that this decision to end my career at the end of this season is the only right one."
Currently ranked 117th, Thiem claimed his first win on the ATP Tour in 2024 by beating German Maximilian Marterer at the Estoril Open in early April but was eventually knocked out in the last 16 by Frenchman Richard Gasquet.
He had bowed out of this year's Australian Open in the first round.
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