The former number one overall pick had been dealing with a lower leg problem that sidelined him during the pre-season but the news sent shockwaves through the league.
"This is not an easy decision. Honestly, it's the hardest decision of my life. But it is the right decision for me," a teary-eyed Luck told reporters after the Colts' pre-season game against the Chicago Bears.
"For the last four years or so, I've been in this cycle of injury, pain, rehab, injury, pain, rehab, and it's been unceasing, unrelenting, both in-season and offseason, and I felt stuck in it.
"The only way I see out is to no longer play football."
Luck was the top pick in the 2012 NFL draft and is a four-times Pro Bowl player.
He led the Colts to the playoffs in his first three seasons but then ran into health issues.
He played just seven games in the 2015 season due to injuries to his kidney and abdominal muscle.
In 2017, Luck missed the entire season following shoulder surgery.
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The signal-caller was named the NFL's Comeback Player of the Year last season after returning to produce another Pro Bowl year.
"I haven't been able to live the life I want to live. It's taken the joy out of this game," Luck added.
"After 2016 when I played in pain, and wasn't regularly able to practise, I made a vow I wouldn't go down that path again.
"The only way forward is to remove myself from this cycle. I came to the proverbial fork in the road, and made a vow if I ever did again I would choose me, in a sense."
News of his retirement was already viral by the time the Colts lost 27-17 to the Bears, and Luck was booed by spectators at the Colts' home Lucas Oil Stadium.
"I'd be lying if I said I didn't hear it," he said. "It hurt."
Luck, who threw for more than 23,600 yards with 171 touchdowns, was on track to rack up statistics that would rank him among one of the all-time great quarterbacks.
NFL writers described his retirement as the most shocking in the league's history, with only a handful of top quarterbacks retiring under the age of 30 in the last few decades.
His departure thrusts backup Jacoby Brissett into the starting quarterback role.