Urlacher, who turns 35 later this week, said he was honoured to spend his whole career with the Bears.
"Although I could continue playing, I'm not sure I would bring a level of performance or passion that's up to my standards. I'm proud to say that I gave all of you everything I had every time I took the field," he said in an online statement.
"I will miss this great game, but I leave it with no regrets," he added.
Urlacher wanted back with the Bears for another season, but his representatives and general manager Phil Emery could not hammer out an agreement.
There were reports linking him to the Minnesota Vikings earlier this month.
Selected ninth overall in 2000 out of New Mexico, where he grew up, Urlacher immediately made an impact in the middle of Chicago's defence.
He was named defensive rookie of the year, and five years later the league's top defensive player.
Urlacher appeared in all 16 regular season games in all but three of his 13 seasons.with the Bears, who he helped lead to a Super Bowl appearance in 2006-07.
He finished with 41 ½ sacks, 22 interceptions and 12 forced fumbles.