Willey was not offered any deal when the English cricket board announced new central contracts last week and he will now be free to play in various franchise-based leagues across the world.
The left-arm bowler has played 70 one-dayers, including three matches in the ongoing World Cup, and 43 T20 Internationals since his England debut in 2015.
"I have worn the shirt with immense pride and given my absolute everything to the badge on my chest," Willey said in a statement.
"I've been very lucky to be a part of such an incredible white-ball team with some of the best players in the world."
England's title defence is in tatters with Jos Buttler's men languishing at the bottom of the points table after five defeats in six matches.
Willey said his decision to retire had nothing to do with England's performance in the tournament.
"I feel I still have a lot more to give on and off the field while I am still playing my best cricket, and my decision has nothing to do with our performance during the World Cup.
"I'm sure everybody who knows me does not doubt that, whatever my involvement in the remainder of this campaign, I will give my everything and more. That's the only way I know."
