The announcement, which came at Mercedes-Benz's annual Stars and Cars event in Stuttgart, comes as a surprise as Hakkinen had been expected to remain with the German manufacturer for another crack at next year's DTM title.
"It's time for me to stop racing in the DTM," Hakkinen said. "That's the bad news.
"The good news is for the other competitors, they can have some peace on the track now."
Ralf set for DTM role
07/02/2008 AT 08:07
After making his mark in the British single seater ranks, notably with a Formula Three title in 1990, Hakkinen graduated to Formula One with Lotus the following year.
Points in only his third race were a good way to endear himself to the team, especially as his car was far from a front-runner, and he did even better in his second term, finishing eighth in the championship.
He abandoned racing in 1993 to take the test drive with McLaren, but was rewarded for his efforts by being handed a race seat when Michael Andretti quit F1 before the end of the season.
Ayrton Senna's defection to Williams the following year left him as the team's number one driver, but his luck almost ran out in Australia in 1995 when he suffered an enormous crash in practice.
So bad were his head injuries in the 160 mph crash, that he was actually pronounced dead at one point by doctors in an Adelaide hospital. Miraculously though, he made a full recovery and was back behind the wheel just three months later.
The Hakk was most certainly back, but poor machinery deprived him of taking his first win until the final race of the 1997 season at Jerez in Spain.
1998 was to be the best season of his career as he won eight times and beat Michael Schumacher to his first world title at the final race of the year in Suzuka.
And he made it back-to-back successes 12 months later, this time beating the other Ferrari of Eddie Irvine in a Japanese Grand Prix showdown.
2000 saw a few mechanical failures deprive him of the chance to challenge Schumacher seriously for the title and was the last year when race fans saw him at his peak.
The birth of his son Hugo over the winter of 2000/2001 saw a change in the flying Finn's attitude, prompting him to decide to retire after the Monaco Grand Prix.
Boss Ron Dennis was able to convince him to stay on until the end of the year, and saw the final and finest of his 20 wins at the US Grand Prix, when he played his strategy to perfection, beating Schumacher to victory and cementing his status as the only rival the German truly considered worthy of his respect.
Retirement from F1 saw him back away from racing altogether, before Mercedes came calling again with the lure of a DTM drive in 2005.
The offer proved too tempting to turn down and Hakkinen returned, albeit in a tin top. Victory in only his third race showed everyone that the old master had lost none of his speed, and two more victories followed this year.
Hakkinen's retirement robs the sport of one of it's great characters, but he will most likely remain with Mercedes in an ambassadorial role.