Daly played in England's 2-0 victory over Ireland on Tuesday in a Euro 2025 qualifier.
"I would love nothing more than to play for England forever, but the time has come for me to hang my boots up on the international stage," the Aston Villa striker said in a post on X.
"While today is extremely difficult for me, it is also one filled with reflection and gratitude.
"I am very fortunate to have played a small part in making history with the Lionesses and I feel now is the right time to pass on that baton to the next generation and be England's number one fan from the stands!"
Daly will continue playing for her club Villa.
She said winning the UEFA Women's Euro 2022 final after starting every game of that tournament and helping England reach the Women's World Cup final for the first time in 2023 were career highlights.
Daly, who made her debut for the Lionesses in 2016, came off the bench in Tuesday's victory in Dublin, her 84th international cap.
"Rachel has been an incredible part of our story and the history we've made together," said England coach Sarina Wiegman. "I have never worked with a player so versatile, always with a smile on her face, bringing energy and trying to do her best for the team."
FA women's technical director Kay Cossington said it was difficult to find words to describe Daly's contribution.
"She is a phenomenal individual who has been a huge asset to the England team, on and off the pitch," Cossington said. "She's put her heart and soul into every game, playing not only for the badge but for every little girl who loves the sport."
