Crawford, 34, told Hawks coach Alastair Clarkson and general manager of football operations Mark Evans on Friday evening of his decision not to play on, following weeks of private reflection over his future.
The stunning decision came shortly after Crawford reportedly signed a one-year deal to play on.
Evans even spoke with the Herald Sun newspaper on Friday of his pleasure that Crawford had re-signed with the Hawks, along with Stuart Dew, Brett Guerra, Clinton Young and Josh Kennedy.
Crawford battled with knee tendinitis throughout the 2008 season, but he was able to return to the side in time to play a prominent role in the Hawks' premiership victory over Geelong.
After significant improvement to the injury in the later part of the year, Crawford had been given the all-clear by the Hawks medical staff to continue on to his 17th season.
But despite having recently agreed terms with the club on a new contract for 2009, time away from the game following the grand final win had given Crawford the opportunity to reflect, and he decided to end his 305-game career on a high.
"The recent break and distance away from the game has enabled me to re-think what I wanted to achieve in footy – and the answer is that I have achieved what I had hoped when I set out," Crawford said in a statement released by Hawthorn.
"Winning a premiership with Hawthorn has been the highlight of my career. I am proud to have represented one club and will look back at everything we have achieved over my 17 years at the Hawks with fond memories."
Crawford, a Brownlow Medallist in 1999, won four best and fairest awards and in 2008 became only the sixth Hawthorn player to play 300 games when he led out the Hawks for their round 19 win over the Brisbane Lions at Aurora Stadium, Launceston.
"Having some time to reflect, standing on the podium on grand final day as premiers had always been my ultimate goal. It is a great way to go out of the game – on a high, with a premiership medal, at a time of my choosing.
"The club have been fantastic through this time and I can't thank them enough for their support in letting me come to my own decision.
"I have seen many players come and go over the years and have played with some outstanding blokes.
"I'd like to thank all those that I have called my teammates, those in administration who have supported our club off the field, the trainers and medical staff, the coaches, the volunteers and the members. We have all played our part in making this club what it is."
Clarkson had nothing but praise for the retiring star.
"Crawf has been an outstanding role model to so many in the game," he said.
"He was still one of the best trainers and he can stand tall knowing that he gave every last drop for the Hawthorn Football Club. He has wrung the towel dry and he can walk away proud, having played his part."
Hawthorn chief executive Ian Robson said the news was "stunning" but the club respected Crawford's decision.
Robson said he was not told until 10pm on Friday night that the veteran midfielder had changed his mind about retiring.
