The 39-year-old retired from international cricket in 2016 and bid adieu to the Australian Big Bash league last year.
"It all started as a dream as a young kid saying to my Mum, as I watched a Test match, that I want to play for Australia. Now as I officially announce my retirement from all cricket I feel crazily lucky to live my dream," Watson said in a video posted on his Twitter handle.
WATCH SHANE WATSON'S RETIREMENT SPEECH BELOW:
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"This closing chapter is going to be so hard to top, but I am going to try. I truly am forever grateful to have lived this amazing dream. Now onto the next exciting one...," Watson said.
Watson played 59 Tests, 190 ODIs and 58 T20Is at the international level.
A sought-after player in the T20 format, Watson has 3874 runs in 145 IPL games with four hundreds and 21 fifties. He also has 92 wickets.
Watson played 11 games for Chennai Super Kings in this IPL season and scored 299 runs which included two half-centuries.
(With additional information from PTI)