The 33-year-old, who has racked up 84 appearances for the Aviva Premiership side since joining in 2008, has been advised to hang up his boots.
"Coming to Leicester Tigers has been a great experience and I have a lot of good memories from playing for the club," said Newby.
"We've been involved in a lot of big games, the semi-finals and finals in the Premiership and in the cup competitions. There have been a lot of highlights.
"Outside the rugby, the thing that stands out for me is that, although the club is a big business, it is also like a big family and everyone is very welcoming."
Tigers director Richard Cockerill added: "Newbs has been a key member of the squad in his four full seasons at the club.
"He is a quality player, his knowledge of the game and his leadership qualities have been very important to us. It is sad to see his career come to an end due to his knee injury, but we all wish him well in the future and he will always be welcome here."
Newby also has three international caps with New Zealand under his belt.