His career has been blighted in recent years by a knee injury and speculation about the 34-year-old´s future intensified after Vaughan failed to win a place in England´s squad for the Ashes series against Australia which starts next week in Cardiff.
Yorkshire batsman Vaughan, in a statement issued by the England and Wales Cricket Board (ECB), said: "After a great deal of consideration, I´ve decided that now is the right time to retire from cricket.
"It has been an enormous privilege to have played for and captained my country and this is one of the hardest decisions I have had to make.
"Having played almost non-stop for sixteen seasons, I feel that the time is right for the focus to shift to the next generation.
"We have some fantastic talent coming through the English counties and, with the next Ashes series upon us, now is the time for the younger players to rise to the challenge of building on the success achieved in English cricket in the last few years.
"I´d like to record my sincere thanks to the England fans and the ECB and the members and supporters of Yorkshire County Cricket Club for their unstinting backing throughout my career as well as my wife Nicola and the rest of my family who have been equally supportive.
"I´m also extremely grateful to all of the players, managers, coaches, media and administrators I´ve worked with, who have all contributed to making my career so enjoyable and fulfilling.
"I´d also like to wish Andrew Strauss and the current England team success in this Ashes series. I know they have the drive, ambition and abilities to repeat the success from 2005. Winning that series was most definitely the highpoint of my career."
Vaughan´s record as captain during his five year spell in charge from 2003-2008 of 26 victories, 11 defeats and 14 draws, make him England´s most successful skipper in terms of overall wins.
England´s 2005 Ashes series win - which included a nailbiting two-run win at Edgbaston - was the crowning achievement of Vaughan´s time in charge of England, with his knee problem leaving him sidelined for months at a time.
Unsurprisingly, his form as a batsman - which had seen him touch the realms of greatness during the 2002/03 tour of Australia when he made 633 runs at just over 63 apiece with three hundreds - also began to decline.
Desperate for one last series against Australia, Vaughan vowed to regain his place through sheer weight of runs but so far this season he has managed just 147 runs in seven County Championship innings for Yorkshire.
Meanwhile the emergence of Ravi Bopara, who this year has made hundreds in three successive Tests against the West Indies, at No 3, also dented Vaughan´s hopes of a recall.
Vaughan scored 5,719 Test runs in 82 matches at an average of 41.44 with 18 hundreds and a best of 197 against India at Trent Bridge in 2002.
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