Shiels, 31, played a crucial role in Hawthorn's three consecutive premierships between 2013 and 2015 and was vice-captain in 2017 and 2018.
He fell out of favour this year, playing just 13 games, and opted to retire rather than head elsewhere.
"It's been a tough decision, and a decision I was always going to leave until the end of the year as I made the commitment to my teammates and staff at Box Hill to play out finals with them," Shiels said.
"I've since had the opportunity to sit down with my family and friends to work out what is best for me and we decided that I'm going to hang the boots up.
"It's been a great journey for me, having walked into this footy club as a 17-year-old still in school, to finish 14 years later with 255 games and three premierships is something I will be forever grateful for."
With skipper Ben McEvoy also retiring this year, only Luke Breust and Jack Gunston remain at Hawthorn from the three-peat.
Shiels was drafted at pick No.34 in the 2008 AFL draft and became one of the Hawks' most consistent and tough-tackling players.
"Liam sits comfortably with those who have achieved the very best at Hawthorn," Hawks football boss Rob McCartney said in a statement.
"Importantly, Liam was a player's player, sacrificing his game for the greater good of the team."
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