The 36-year-old, who made his England Test debut in 2002, has spent his entire career with Kent, where he scored 19,419 first-class runs over the past 18 years.
"By mutual agreement the club and I have come to an agreement after a long and enjoyable career to call it a day," Key told Kent's official website. "It's time for the younger players to have their chance and it doesn't feel right for me to stand in their way anymore.
"I would like to say a massive thank you to all who have supported me throughout my career. It has been a great honour to represent Kent. I don't know what the future holds but I look forward to what the next chapter has in store."
Key played in 15 Tests, five one-day internationals and one Twenty20 for England.