The 27-year-old, who moved to London Road from Shrewsbury Town on a free transfer in May 2010, has been out of action since dislocating a kneecap in Peterborough's FA Cup win over Stockport in November 2010.
"I've been left with no choice but to make the decision to announce my retirement from the professional game due to a knee injury," Hibbert told the club's official website.
"I'm truly devastated, but I can walk away knowing I couldn't have done any more. I would like to take this opportunity to thank the chairman Darragh MacAnthony, the manager Darren Ferguson, the staff and players at Peterborough United who have been fantastic to me.
"I have no doubt the club will continue to go from strength to strength. I'll never have a bad word to say about the football club and I wish them the very best in the future. Finally, I would like to thank the fans for their support during my time at London Road."
Hibbert scored once in 12 appearances for Peterborough.