Ballesteros, who turned 50 in April, has not been a force in golf for the last 10 years as he has coped with back injuries.
He was torn between trying to keep playing and stepping away, and decided to give it one last chance at the Masters, where he won twice. But he finished last after rounds of 86-80, then tried one event on the Champions Tour.
"I don't have the desire," Ballesteros said at a news conference at Carnoustie, where he made his British Open debut in 1975.
He said he would continue to play golf with his children, and his focus would be spent on his family and his business, which includes golf course design. His announcement follows television reports from Spain that he tried to commit suicide, which Ballesteros said "were not even close to reality."
Ballesteros did for Europe what Arnold Palmer did for American golf a generation earlier. He was a swashbuckler on the course, a combination of power and amazing imagination. He won one of his three British Open titles by playing a shot from the car park..
Inspired by his fierce style, Europe closed the gap on the United States in the Ryder Cup until winning for the first time in 1985, and dominating ever since. One of those victory came in 1997 at Valderrama, with Ballesteros as the captain.