"It's been a great honour to play for a tremendous club like Lancashire," he said. "I've had six fantastic seasons at Old Trafford and everyone at the club has been extremely supportive during this time.
"But I've been presented with some opportunities away from cricket, and I'm at a stage in my life where I need to explore these at the earliest opportunity."
Sutcliffe joined Lancashire in 2003 after eight seasons at Leicestershire where he helped them to two Championship titles in 1996 and 1998. However, in recent seasons his returns have diminished and this year he has made 164 in seven Championship matches. He finishes with 9464 runs at 34.13 in first-class cricket.
"Iain has been a great servant for the club and a model professional during his six seasons at Lancashire," said cricket manager Mike Watkinson. "He is a positive influence on the entire squad and an outstanding club man both on and off the field
"It's a difficult decision to retire from a sport you love, but Iain knows he has the backing of everyone at the club and we wish him well with his future endeavours"
Sutcliffe's retirement follows the announcement this week that Dominic Cork and Simon Marshall are being released at the end of the season.