The 38-year-old pacer quit from international cricket in July 2012, but has continued to play Twenty20 cricket for Sydney Sixers at the domestic level in the BBL and the Indian Premier League.
The final-round BBL clash against cross-town rivals Sydney Thunder next Thursday at the SCG could be Lee's swansong match if the Sixers lose and fail to book a play-off berth.
While announcing his decision, Lee said he was both emotional and excited.
"I'm excited, I'm emotional, I'm happy, but I'm certainly not worried because I know that I've made the right call.
"I didn't bother to do the math on it, but it's a lot of ice baths, a lot of training sessions, a lot of cricket balls bowled, there's a lot of flights. But there's also been a lot of fun," he said.
Lee played 76 Tests for Australia, taking 310 wickets at an average of 30.81. He also made 221 appearances in ODIs and claimed 380 dismissals at average of 23.36.
The 38-year-old is also Australia's leading wicket taker in the 50-over format alongside Glenn McGrath.
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