The 32-year-old Fernandez pitched only 193 1/3 innings over the past four seasons.
He won the NL Comeback Player of the Year Award in 1999, when he went 7-8 with a 3.38 ERA, but has given up on another comeback attempt.
He's been out since May 2000.
"The day has come that I have to move on with my life," an emotional Fernandez said at a news conference.
"It's kind of a depressing day for me."
Fernandez's injury, a fully torn rotator cuff, was discovered after he lost Game 2 of the 1997 National League championship series against Atlanta.
Even then the injury was regarded as career-threatening and he watched from the bench with a mixture of frustration and elation as the Marlins won the World Series.
He missed all of the 1998 season, then pitched 141 innings in 1999 despite three stints on the disabled list.
He won on opening day for the second consecutive year last season and improved to 4-4 with a victory May 6, in a game that turned out to be the last of his career.
"The Florida Marlins have been very fortunate to have someone like Alex Fernandez in our organization," general manager Dave Dombrowski said.
Fernandez, a Cuban American who grew up in Miami, finished 107-87 with a 3.74 ERA in 263 games.
In seven seasons as a workhorse for the Chicago White Sox, Fernandez was never on the disabled list, which is one reason Florida signed him to a five-year, $35 million US deal before the 1997 season.
He went 28-24 for the Marlins.
Insurance money has covered much of Fernandez's salary during the time he has been sidelined.
By Steven Wise