The rugged 37-year-old, known affectionately Down Under as 'Mr Cricket' for his all-consuming passion for the game, will sign off at the peak of his powers, having scored three centuries in his past five tests.
Hussey, speaking in an interview with Nine Network, said he wanted to bow out on a high and that family life would become his priority.
"I was actually quite excited to tell (my children) this morning that I'm not going to go away and play for Australia any more," he said.
"They were happy but not as excited as I thought they were going to be, so it was a bit of shock."
Shut out from the peerless Australia team that dominated world cricket for over a decade, Hussey had to wait until he was 30 for his test debut, against West Indies in 2005, by which time he had amassed a mountain of first-class runs.
Although scoring one and 29 in his first test in Brisbane, Hussey scored consecutive centuries in his next two matches and went on to score another 17 in his late-blooming career.
Hussey's career dipped in 2008-09, but he dug himself out of a prolonged form slump with two centuries in Australia's home Ashes series loss in 2010-11 and has continued to dominate bowlers around the world since.
"I know how low I felt when my head was on the chopping block and I was maybe one innings away from being dropped from the team," the Western Australian said on Saturday.
"It's not a nice place to be."
An aggressive left-hander who charges between the wickets and always looks to score, the middle order batsman will play his 79th test against Sri Lanka in Sydney and brings 6,183 runs at an outstanding average of 51.52 into the match.
The Perth-born Hussey has also scored over 5,000 runs in one-day internationals and will sign off with matches against Sri Lanka and West Indies in January and February.
The sight of the ever-reliable Hussey walking out to the pitch following a top order collapse has been a comfort to cricket fans Down Under in recent years, with the test team struggling to rebuild following the retirements of a golden generation of cricketers.
His shock decision is a major blow ahead of a tour to India and the back-to-back Ashes series in 2013, however, and follows the retirement of another prolific run-scorer in former captain Ricky Ponting, who called it a day after the third test match against South Africa earlier this month.
Already battling for cohesion with a brittle top order, Australia will need to anoint a replacement quickly but will be hard pressed to find a batsman of Hussey's pedigree, and with his ability to play spin on India's pitches.
Hussey said he was looking forward to soaking up his valedictory test at the Sydney Cricket Ground, a dead rubber after Australia sealed the series 2-0 with their win in the second test in Melbourne on Friday.
"It's one thing about playing for Australia, it's always a lot of stress and a lot of pressure to perform," Hussey said.
"I feel like I'm coming into this last test match with no pressure at all.
"It will be nice to sit back when it's all finished and really reminisce over some fantastic memories and some great wins for Australia."
(Reporting by Ian Ransom; Editing by Peter Rutherford)