Lee, 35, was forced to return home early from Australia's one-day tour of England earlier this month with a calf injury. And his appearance in the fourth match of the series in Durham - where he took 0-12 off 2.2 overs in an eight-wicket loss - proved to be his last for his country.
Lee had been hopeful of playing in Australia's Twenty20 World Cup team in August and September in Sri Lanka, but after his latest injury setback, the paceman decided enough was enough.
He told Australia's Channel 9: "The last two or three nights I thought about it a lot. I woke up this morning and just felt like I was ready."
He added: "I think personally in a team environment you have to have 100 per cent commitment - mentally and physically.
"And I guess looking at the next few months I just didn't have that desire any more. It wouldn't be fair on me, or my team if I went with that attitude.
"You get to the point in life where you say enough is enough."
The paceman will continue to play domestic cricket for New South Wales in the shorter forms, although he turned down a Cricket New South Wales contract last month, while he is also likely to continue playing in the Indian Premier League.
Lee retired from the Test arena in February 2010 after claiming 310 scalps at an average of 30.81 in 76 matches.
He continued to play one-day international and Twenty20 cricket at both international and domestic level and, in the absence of the likes of Glenn McGrath and Jason Gillespie, spearheaded the pace attack in the 50-over format of the game.
Lee finished his one-day career with 380 wickets - one short of McGrath's Australian record haul of 381 - from 221 matches at an average of 23.36 and an economy rate of 4.76.