In an emotional post on Instagram the veteran wing, who turns 35 in June, said: "The inevitable moment has come knocking on my door and I've welcomed it in for a drink."
Knee-injury victim Habana, who last played for Toulon in April 2017, added: "It's been more than a year of hoping, trying, pushing and willing to get back on the field for one last time, to taste the sweet victory or encounter that gut-wrenching despair.
"...But it’s unfortunately just not to be. I, like most, would have liked my career to have ended differently, but sometimes things don’t turn out quite the way we hope for.
"So at the end of this season, it’s time to say goodbye and thank you to the game I so dearly love."
Habana arrived at Toulon for the 2013-2014 season, playing in two victorious European Cup teams as well as collecting a Top 14 title.
With 124 Springbok caps he is second in the all-time list only to Victor Matfield but holds his country's record of 67 Test tries.
He played a critical role in South Africa's 2007 World Cup triumph.
Habana has struggled to force his way back into the Toulon side after undergoing knee surgery last year.
He told his Instagram followers: "To try and sum up the past 16 years and how quickly they've flown by or even begin to describe how amazing the journey has been is impossible."
He expressed his thanks to everyone from his family and friends, to his coaches and teammates, "but most of all to rugby, because for me it truly is a game made in heaven". DM