Carragher, 35, helped the Reds win the 2005 Champions League as well as two FA Cups and three League Cups.
Following his debut in 1997 he has made more than 700 senior appearances for Liverpool - second only to Ian Callaghan in the club's all-time appearance table - after spending his entire career at Anfield.
"This will be my last season at Liverpool and my last as a professional footballer," he told the club's website.
"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.
"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."
Carragher has spent most of this season on the bench, with Martin Skrtel and Daniel Agger preferred in the centre of defence.
However he recently won his place back and helped the Reds to draws at Arsenal and Manchester City.
"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," he added.
"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."
Brendan Rodgers's Liverpool are seventh in the Premier League table and will play Zenit St Petersburg in the last 32 of the Europa League after topping their group.
Rodgers said the defender still has a significant role to play.
"Jamie has been absolutely outstanding for me since I joined the club. He has been a model professional on and off the pitch and has shown an unswerving commitment to our work," he said.
"I know his commitment and dedication on the pitch will remain as it has done his entire career at Liverpool.
"Jamie's focus is always on doing what is best for the team and he has said he doesn't want any distractions while there are still important matches to be played and won.
"But when the time is right we, as a team and a club, will give the man the tribute and recognition he deserves; I know the supporters will want to say thank you to someone who has served them with such distinction for so long."
Carragher won 38 caps for England, returning to help the Three Lions in the 2010 World Cup after initially retiring in 2007.