The British and Irish Lions loose-forward suffered serious ankle damage in Pro12 action for Ulster against Edinburgh in November 2012.
The 28-year-old fought back to make three Ulster appearances this term, but has since suffered a recurrence of the same issue.
The 35-cap back-rower had hoped to shake off the problem once and for all and secure a new Ravenhill deal, yet he has now been forced to admit defeat.
"It is every young rugby player's dream to represent their province and their country and I have been enormously privileged to have done both," said the 2009 Grand Slam winner in a club statement.
"I have shared a pitch with so many talented players over the past nine years and I want to thank my team-mates at Ulster and Ireland for the support that they have given me.
"I also want to thank the IRFU as well as the strength and conditioning coaches and medical team at Ulster Rugby, for all their hard work, patience and backing over the past year and a half.
"I have had a great career, met many wonderful people and I hang up the boots with no regrets."
Injury robbed Ferris of a Test place on the 2009 Lions tour to South Africa, one of few gaps in an impressive CV.
Ferris made his senior Ulster debut in 2005, quickly establishing himself at both provincial and international level.
Ulster rugby director David Humphreys admitted the bullish back-rower was earmarked for stardom from the very start.
"I would like to thank Stephen for the outstanding contribution that he has made to Ulster Rugby," said Humphreys.
"We knew from the day and hour that he walked into the Academy that he was an exceptional talent. Through dedication and hard work he developed into one of the best forwards in the world game.
"He has always played an important leadership role within the squad and he helped mentor and inspire others.
"While we are sorry to be losing Stephen, we recognise and celebrate the exceptional rugby career that he has had and wish him every success in the future."