The 33-year-old, who spearheaded Japan's stunning triumph at last year's World Cup in Germany, will continue her career at club level, local media reported.
"I've achieved what I can and have no regrets," Sawa told Japan's Nikkan Sports daily following Thursday's 2-1 defeat by the United States in the gold medal match in London.
"I always wanted an Olympic gold medal but I've given everything. This is the end," added Sawa, who played in five World Cups and scored 81 goals in 186 appearances for Japan.
"To be honest it's become hard to be 100 percent for Japan training, physically and schedule-wise. We finished with a medal so it's a good time to call it a day."
Sawa's goals were instrumental in Japan's astonishing run during last year's World Cup when they toppled the Americans in a penalty shootout in the final in Frankfurt.
Japan's "Nadeshiko" team, named after a frilly pink carnation, embodied the steely determination of a country coming to terms with the deadly tsunami and a raging nuclear crisis.