Blair, Scotland's most capped number nine with 80 Test appearances, joined Edinburgh in 2002 and has played in more than 150 matches in his 10 seasons with the club.
The 30-year-old, who toured South Africa with the British and Irish Lions in 2009, said: "I've enjoyed myself so much here and feel I've achieved a lot, which has made this a very hard decision to make, but the time is right for me personally to throw myself at a whole new challenge."
He continued: "Being born and raised in Edinburgh, I've played all my rugby here and have been committed to Edinburgh Rugby my entire professional career.
"It's been an honour to represent the club which, over the years, has helped me fulfil my ambitions of becoming a regular for my country and earning selection for the Lions.
"Rugby offers many opportunities and experiences and, while I believe that this may be one of the most exciting times to be an Edinburgh Rugby player, I don't want to regret not trying something different when I finally hang up my boots.
"I'm absolutely committed to Edinburgh Rugby until the end of the season and will do everything in my power to go out on a high, while I remain absolutely committed to playing for Scotland."
Blair made his 50th Heineken Cup appearance in last Saturday's quarter-final win over Toulouse, which set up a last-four meeting with Ulster in Dublin on April 28.
Edinburgh head coach Michael Bradley, a former Ireland scrum-half, said: "He's one of the most naturally gifted scrum-halves of this era with a fantastic eye for a break. He is a top-class controller of the game.
"He's been an incredible servant to Edinburgh Rugby and Scotland for a decade and we wish him all the best in the seasons ahead."
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