Hoy won six golds and one silver in four Olympic appearances but has decided, aged 37, that it's time to focus on new challenges.
He had hinted that he may continue to the 2014 Commonwealth Games in Glasgow, which will be staged in a velodrome named after him, but conceded it was better to go out at the top.
Hoy, who also won 11 world titles, said: "It's not decision I took lightly, but I know it's the right time.
"It's been hanging over me but I feel better to talk about it and it's a lot easier than I thought it would be.
"I feel I got every last drop out in London. It would be better to stand aside to let the younger riders come through and I didn't want to make up the numbers in Glasgow.
"To try and and go for another year would be too much, one year too far for me. I'd rather step aside and let someone else have their opportunity.
"I don't want this to be a sad moment. There's always a temptation of going on too long but you can tell when you're good, but not good enough."
Hoy won his first Olympic medal at the 2000 Sydney Olympics when he claimed team sprint silver and four years later in Athens won kilo gold.
At the 2008 Olympics in Beijing he became the first British athlete to win three golds at a single Games in 100 years and last year brought the curtain down on his storied career with a further two podium topping performances, surpassing the achievements of five-time Olympic gold medallist Sir Steve Redgrave.