The 35-year-old, who has made more than 700 senior appearances for the Reds since his debut in January 1997, has decided to call time on his career and end speculation surrounding his future.
Carragher said in a statement: "This will be my last season at Liverpool and my last as a professional footballer.
"I'm making this announcement now because I don't want the manager or the club to be answering questions on my future when I've already decided what I am going to do."
The former England international, who has won several major honours during his time at Anfield, including the Champions League, FA Cup and UEFA Super Cup, is second only behind Ian Callaghan in the club's all-time appearance table.
Carragher confirmed he will continue until the end of the season and make no further comment on his future until then.
He said: "I will be fully committed between now and the end of the season to doing the very best for Liverpool Football Club, as I've done my entire career since joining aged just nine-years-old.
"It has been a privilege and an honour to represent this great club for as long as I have and I am immensely proud to have done so and thankful for all the support I have had.
"There are many memories I want to share and people to thank, but now is not the time for that.
"I won't be making any further comment on this decision until the end of the season. All our focus and concentration should be on achieving the best possible finish in the league this season and trying to win the last remaining trophy we are competing in."
Carragher was born in Bootle, Merseyside, and joined Liverpool as a youth before securing his first professional contract in 1996.
While his Liverpool career starting to take shape, Carragher was also starting his rise through the England ranks, where he went on to play at Under-20, Under-21 and at a senior level where he earned 38 caps for his country.
He retired from international football in 2007 but made a comeback in 2010 under Fabio Capello and competed in the World Cup before retiring again after the tournament.
This will be veteran defender's 17th and final league campaign, but Carragher will take memories of Liverpool's treble-winning season in 2001 into his retirement, where the Reds picked up the League Cup, the FA Cup and the UEFA Cup.
He was also instrumental in Liverpool winning the 2005 Champions League title in Rafael Benitez's first season in charge at Anfield, the fifth time Liverpool have won the trophy in their history.