The 30-year-old is Britain's most decorated taekwondo athlete ever having attended four Olympics, winning the nation's maiden Games medal with bronze at Beijing 2008, as well as two senior world titles.
Stevenson became Britain's first ever world champion in the sport in 2001 with her second title coming in May 2011 before she lost both her father to a brain tumour and mother to cancer.
She battled a serious cruciate ligament injury to participate at London 2012, where she was first tasked with reading the Olympic Oath on behalf of the athletes during the opening ceremony on July 27.
Stevenson lost to Paige McPherson at the Games with that now her last fight having chosen to call time on her career, something she flirted with after the Beijing Olympic in 2008.
She has earned a coaching role on British Taekwondo's World Class Performance Programme and is excited about the new challenges they await now that she no longer competes.
"I am relieved I've finally been able to make the announcement. I've known in my heart it's what I have wanted to do for a while," said Stevenson.
"But I held off in case I missed competition and wanted to go back. I felt this way after Beijing 2008 and thought 'I am going to stop'.
"When I did, I missed it so I didn't want to make the same mistake again. However, this time I didn't miss it and I am glad I don't have to fight again.
"I have done enough and didn't want to put my body through anymore. I've had a very tough couple of years, losing my mum and dad, and then suffering my knee injury last year.
"But there have been plenty of highs and plenty of firsts. Becoming senior world champion at 18 was a stepping stone for our sport to enable us to start getting funding.
"Winning the first Olympic medal for taekwondo in Beijing was another big one. And then to top it off, becoming world champion again in 2011 through such traumatic circumstances, was very special.
"I am excited to finally say I am retiring but it doesn't mean I have lost my love for the sport. I haven't lost my determination to be the best and to win.
"So, I am delighted I have been accepted onto the coaching team so I can help put that into the athletes we have now and the next generation."
Meanwhile British Olympic Association chairman Lord Sebastian Coe congratulated Stevenson on her career.
"As Britain's first-ever world champion and Olympic medallist in taekwondo, Sarah Stevenson has been a trailblazer for her sport, in the UK and globally," he said.
"Her pursuit of excellence has been tireless and she reached the pinnacle of her sport through dedication and sacrifice. Sarah overcame personal heartbreak and serious injury to secure a place with Team GB last summer.
"Recognition of her outstanding contribution to British sport came at the Games in London when she was selected to read the Olympic Oath on behalf of her fellow competitors at the Opening Ceremony.
"We wish Sarah the very best for continued success as a taekwondo coach and we thank her for her commitment to Team GB and the Olympic Movement."