Anderson, who claimed 704 test wickets for England, will leave Lancashire as the county look to move on from the 44-year-old and rebuild their squad for a promotion push from Division Two of the County Championship.
The veteran bowler made 112 first-class appearances for Lancashire, claiming 443 wickets, and was involved in their County Championship title triumph in 2011.
"I've supported Lancashire since I was a kid, and so to get to play for them for 25 years was a dream come true," Anderson said in a statement.
"I have always found it special walking out to play at Old Trafford and have some incredible memories of doing so including the honour of being captain.
"If it was up to me it wouldn't have ended like this but I wish the players and fans all the best for the future."
Anderson, who was appointed Lancashire's red-ball captain for the first time in his career in the 2026 season, took 50 wickets at an average of 17.68 this summer, but the county finished seventh out of eight teams in the second division.
"I spoke to Jimmy about our ambitions to rebuild our men's squad that is capable of securing promotion from Division Two of the County Championship and then challenging to win Division One over the next three to four years," said Paul Farbrace, Lancashire's incoming director of cricket.
"We are keen to begin that rebuild now, both in terms of the playing squad and the wider professional cricket set-up, and to make important progress over the coming months.
"As part of those plans, I informed Jimmy that we had taken the incredibly difficult decision not to extend his playing contract for the 2027 season."
Lancashire Cricket had honoured Anderson's contribution to the club by renaming the Pavilion End at Old Trafford the James Anderson End. He was also knighted in 2025 in recognition of his services to cricket.
