The 32-year-old was forced to come to the decision 12 months after being diagnosed with acute leukaemia, from which he has since announced that he is in complete remission.
However, Ikeme has been advised not to return to the field, bringing an end to a career that has seen the Wolves academy product make 274 appearances in all competitions.
Ikeme, who announced the news to his teammates ahead of training on Tuesday morning, will now take time away from the game before embarking on his next challenge.
Wolves executive chairman Jeff Shi told the club's official website: "Having been at the club since the age of 14, Carl is far more than just a player in our eyes - he is our brother and an important part of our family.
"When Carl came to tell us his news, yes there was sadness, but also great happiness to see him so healthy and hungry for the opportunities that lay ahead of him.
"Carl is strong, a fighter, something he has proven in his playing career and also during what has been a very challenging time for him, so I have no doubt he will be a success in whatever he does next.
"We wish Carl all the very best for the future, but remind him he will always remain a part of the Wolves family."
Managing director Laurie Dalrymple added: "While this news will undoubtedly leave the Wolves family feeling sadness for someone they care about deeply, it also gives us the opportunity to celebrate an exceptional career and a true servant of this football club.
"A brilliant goalkeeper who deservedly earned promotions and international caps, Carl's exemplary application on the pitch was matched off it by tireless hard work and a positive attitude that will continue to be an inspiration for young players coming through our academy for many years to come.
"I have been in touch with Carl regularly during a very difficult year for him and his family, and I have been constantly in awe of his strength, positivity and heart at a time of great adversity.
"Carl will, without doubt, be a permanent member of the Wolves family, and I am certain he has a very bright future ahead of him in whatever path he chooses to take."
Nigeria international Ikeme has also spent time on the books of Accrington Stanley, Stockport County, Charlton Athletic, Sheffield United, Queens Park Rangers, Leicester City, Middlesbrough and Doncaster Rovers.