Wallace made the last of his 203 appearances for the RaboDirect PRO12 side in the Heineken Cup quarter-final against Ulster last month after helping them win the competition in 2006 and 2008.
The 35-year-old's decision was confirmed by Munster on Thursday after he failed to fully recover from the setback suffered in a pre-World Cup game for Ireland against England in 2011.
That match proved to be the last of Wallace's 72 international caps over a career which included helping Declan Kidney's side to the Grand Slam in 2009, and going on two British & Irish Lions Tours.
Munster host Ulster on Saturday for their final regulation RaboDirect PR012 game before discovering the identity of their play-off opponents, but Wallace will play no part after finally hanging up his boots.
"Although it's disappointing that injury is forcing me to retire now, I take great comfort that I've had an unbelievably enjoyable career," said Wallace.
"I feel very lucky to have been involved in an era that has seen Munster and Ireland enjoy so much success.
"Professional rugby has exploded in popularity and changed beyond all recognition in this country since I began and I feel honoured to have played witness to its massive improvement.
"I'd like to thank anyone who has helped me and had faith in me during my 15-year professional career including family, team-mates, coaches, medics, friends and not least the supporters.
"I will be looking to step away from rugby and explore a few different business opportunities while also looking forward to being able to spend more time with my wife Aileen and sons Andrew and Harvey."
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