The injury sidelined the three-time world diving champion for most of the crucial run-up to the Games. He eventually finished 11th in the three-metre springboard.
Despatie announced his retirement Tuesday after an illustrious career that saw him burst on to the international scene as a 13-year-old phenomenon when he won gold in the 10-metre event at the 1998 Commonwealth Games.
He told a news conference in Montreal on Tuesday that his objective after London and "a turbulent 2012" was to keep diving for one year.
But Despatie underwent surgery to correct bursitis and tendinitis in his left knee last October. He then had additional surgery a few weeks later.
"I guess in the process circumstances were becoming more and more clear that it was going to be really difficult and demanding for me to dive this year," he said.
Despatie added it was like a weight being lifted off his shoulders when he finally decided to call it quits.
"It's not a forced decision," said Despatie, who turns 28 this Saturday. "There was a lot of thought behind it, but I'm ready to move forward."
His father Pierre said there were ongoing family discussions after the London Olympics about the possibility of retirement.
"But we didn't know when," he said. "We knew he wanted to do an extra year, so it was just delaying the process."
Despatie's father said his son knew he wouldn't be in top shape and ready for the 2013 world championships in Barcelona in mid-July.
"He's not the type of person who just wants to show up at an event — he wanted to show up to win the event," he said.
The younger Despatie said the most important thing in his career was his passion.
"To be the best that I could ever be was my motto," he said. "To work as hard as I could to get where I want to be was what I did."
Despatie's older sister, Anouk, said what made her the proudest was her brother's perseverance.
"When we were young, we went diving together and he persevered all along his career during the ups and downs," she said in an interview. "He always wanted to be the best and finally he succeeded.''
But his 30-year-old sister also admitted she was a bit jealous when she was younger because her brother was getting a lot of attention.
"That was when I was young and when you're little you also need some attention," Anouk Despatie said. "But today that's not a problem at all."
The next step for Despatie is to pursue his longtime dream of a career in television.
"It's important to have dreams, to have other goals after being an athlete," Despatie said. "And lucky for me those dreams were born a long time ago."
Despatie has already had some exposure to the big screen. He starred as himself in a 2007 French teen romantic comedy entitled: "On Your Marks: Party!"
Despatie, who began diving at home as a five-year-old, also thanked all the people and organizations that helped him during his career, including trainers, the Canadian Olympic Committee and Diving Canada.
"Thank you for believing in me," he said. "To all my friends, thank you for your understanding. To my family, mom, dad, thank you for your unconditional support.''
Despatie is the only diver to have won world championships in all three of the one-metre, three-metre and 10-metre events.
He was also a silver medallist on the three-metre springboard at the 2004 and 2008 Olympic Games.
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