The 37-year-old Swiss great made his announcement at a news conference ahead of Saturday's classic race on the Streif course, where he is a four-time winner.
"Kitzbuehel represents something for me and I decided to make my decision here," Cuche said. "It's not a decision that I took last night or today."
Cuche won the season-long downhill World Cup title in four of the past five seasons, and is in contention for a record-equalling fifth crystal globe this season. He won a race in Lake Louise, Alberta, in November.
"I'm in top form and I can still aspire to win races. It's in this condition that I wish to retire from the World Cup," the former butcher from Neuchatel said.
"Today marks a very emotional moment for me," Cuche added while fighting tears. "An important milestone in my career and in my life ... I am convinced this is the right moment to retire."
Cuche said that the announcement was a relief to him.
"Now that I am freed from other thoughts, I can give them full throttle," he said about Friday's super-G and Saturday's downhill in Kitzbuehel. "I would like to leave my mark one way or another."
Cuche became the oldest men's world champion in 2009 when taking gold in super-G in Val d'Isere, France, at 34. He won silver in super-G at the 1998 Nagano Winter Games but never won an Olympic title.
"Of course that's a race I would have loved to win," Cuche said. "But being runner-up to someone like Hermann Maier made it bearable."
Cuche also is the oldest racer to win a men's World Cup race since his victory at the 2011 Kitzbuehel downhill at the age of 36 years, 159 days, beating Liechtenstein great Marco Buechel's record by 85 days.
Cuche is beloved in Switzerland, and on Saturday was elected the country's top personality of 2011.
Hours earlier, he failed in his 13th — and final — attempt to win Switzerland's biggest sports event, the Lauberhorn downhill in Wengen. He was runner-up three times, including behind American rival Bode Miller in 2007 and '08.
Cuche made his first appearance in the World Cup at a downhill in Bormio, Italy, on Dec. 29, 1993. He was 57th.
After getting his Nagano medal, when he was beaten only by Austrian great Hermann Maier, Cuche's career was interrupted by injuries, including a broken leg and ruptured knee ligaments.
Cuche came back even stronger to win his first crystal globe when he was 32 as downhill World Cup champion in the 2006-07 season.
Now with four downhill trophies, Cuche only trails another Austrian great, Franz Klammer, whose five season-long titles heads the all-time list.
Cuche also won the giant slalom World Cup title in 2009 and the super-G title last season.
In the overall standings, which reveal the best all-around racers, Cuche finished in the top three six times but never mounted the top step of the podium. His best finish was second last season behind runaway winner Ivica Kostelic of Croatia.
He has four career world championship medals, with back-to-back downhill silvers in 2009 and '11, and a giant slalom bronze in 2007.
Buechel, who retired two years ago, said he regretted Cuche's decision.
"He is a great athlete and a great person," Buechel said. "I know Didier would rather go on until he is 60 but someday you feel your time has come. You have to respect such a decision."
Swiss ski federation president Urs Lehmann said they were "losing a fantastic sportsman, a wonderful person, and a superb role model."
"He has done great things for Switzerland as a skiing nation," Lehmann said. "We hope Didier will remain part of the Swiss ski sport one way or the other. That would be great."
Willemsen reported from Kitzbuehel, Dunbar from Geneva.