The 31-year-old has won 12 caps for Scotland and has made 110 appearances for his club.
But this season Lee has played just 15 matches in an injury-plagued campaign and scored five tries.
Head coach Frank Hadden said: ``It is most unfortunate that continual knee problems have made it impossible for Derrick to continue in the professional game.
``He is a special kind of rugby player. There is no substitute for ability in this game and Derrick has this in abundance.
He is excellent under the high ball and a fine kicker but it is his line-breaking ability that sets him apart. He has an innate understanding of timing and angles and became the top try-scorer of all time in the Celtic League as a result. His balanced running and ferocious fend continued to surprise the opposition throughout his career.
``A popular character at the club with a sharp sense of humour, he has accumulated more letters after his name than most and I am sure he will be a success in the financial sector before too long. We wish him well.''
Lee, who joined Edinburgh Reivers in 1999 and scored 34 points in his 12 Scotland appearances, added: ``I have decided that after eight years of playing professional rugby week in, week out that it is now time to pursue another career. ``I have just finished my MBA at Edinburgh Business School this year. I have really enjoyed my time at Edinburgh and I have just decided to move on, but I hope to continue playing amateur rugby locally.
``The highlights of my career at Edinburgh Rugby were getting to the quarter-finals of the Heineken Cup last season and playing for Scotland. I wish the team all the best for the future.''
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