Murphy was concussed by a high collision early in last year's grand final and hasn't played since, with the defender opting out of match simulation training in February.
The Magpies said following careful consideration, with the advice of the AFL's medical concussion panel, the decision was made for Murphy to "medically retire" from football.
The 24-year-old informed his teammates of his decision on Tuesday morning.
He had suffered multiple concussions prior to starting, and during, his AFL career.
Nathan Murphy has called time on his AFL career, after seven seasons, 57 games, a premiership, and a lifetime of memories created in the black and white.— Collingwood FC (@CollingwoodFC) A friend to all, whose legacy will live forever at our Club 🖤� pic.twitter.com/ElF6ME3T17April 15, 2024
Murphy is the second player this year to retire through a concussion suffered in last year's finals series.
Melbourne midfielder Angus Brayshaw called time in February after he was knocked out in an attempted smother from Murphy's Collingwood teammate Brayden Maynard in last year's qualifying final.
Like Brayshaw, the reason behind Murphy's retirement was a focus on his health beyond football.
"I feel it is the right time and the right decision for me to hang up my footy boots," Murphy said in a statement.
"I love my football, but my priority is on my future and ensuring I live a full and healthy life.
"I'd like to thank the club, coaches, teammates, staff and the Magpie Army for all their support throughout my playing career and for allowing me the opportunity to live out my childhood dream of playing AFL.
"It is not lost on me how fortunate I am to have been able to experience premiership success with this group and club.
"I hope I did the jumper proud and thank the many people and supporters who helped me along the way."
In last year's grand final triumph, Murphy was concussed in a first quarter collision with Brisbane's Lincoln McCarthy, when his head hit the Lion's shoulder, and he was subsequently substituted out of the game.
Lincoln McCarthy collides with Nathan Murphy during the 2023 AFL decider. (Joel Carrett/AAP PHOTOS)
The premiership player was examined by the league's concussion panel and was ultimately given the green light last December to resume playing.
But he ultimately didn't feature in a match again for Collingwood, before making his final decision on his career this week.
Key defender Murphy played 57 games, including 24 in his breakout campaign last season as a crucial part of Collingwood's backline.
"On behalf of everyone at Collingwood, we thank Nathan for his contribution to our club and commend him on the maturity he has shown throughout this period," football boss Brendon Bolton said in a statement.
"While we will miss 'Murph', he'll forever be a part of Collingwood's history as a 2023 premiership player.
"On behalf of the entire club, we wish him all the best for this next chapter."
