The 34-year-old West Ham centre-back has won 50 caps but is behind the likes of Ashley Williams and James Chester in the Welsh pecking order.
Collins confirmed his decision on social media, but would make himself available in an injury crisis.
“The time has come to step aside to let the younger lads take our great country forward and to great things,” he said on Instagram.
“It’s been a difficult decision to come to, to leave behind such a amazing set of lads and a top manager in Chris Coleman and all his staff, but feel the time is right.”
Coleman paid tribute to Collins, saying: “It’s a shame because I’ve really enjoyed working with him.
“He’s different to the modern-day professional – let’s put it that way. He’s definitely someone I’d put in a dressing room that I can remember, rather than the one I’m working with now. But he’s been absolutely fantastic.”
“He wants to spend a bit more time on himself to try and extend his domestic career and he’s got young children as well.
“He has said if we’re absolutely desperate he would come out of retirement – and that speak volumes for ‘Ginge’ that he has given us that option.”
Coleman and Collins have not always got on well, with the Wales boss saying Collins “got it wrong” by denying that he had refused to turn up for international duty in 2013.
Collins contradicted Coleman’s claim that the former Cardiff defender had turned down the chance to join the squad as a late call-up, prior to September’s game against Serbia.
However, they met to clear the air afterward and, from that point on, Collins continued to be a regular member of Wales squads.
“I knew it was going to work right from the moment we had a ding-dong at the start,” said Coleman.
“I told him what I thought, he told me what he thought. We didn’t hold anything back and the man he is we had a cup of coffee and shook hands. We went forward from there and that’s how it should be.
“He’s not always started and as you get older and you’re traveling away and you’re not starting it’s so tough. It’s hard.
“When you’re together for seven weeks at a tournament – as we were at the Euros – it’s not the ones who are starting you have to concentrate on it’s the ones who are not.
“That affects the whole atmosphere, the boys who are not starting because they can get down and depressed. He’s a vocal character who wants to play but his attitude washed off on everybody because he was so positive.
“He was important in France because he is such a loud voice and such a big character. He was brilliant for us, he did not play in all the games but I’ll miss not having him around because of his personality. But I respect his decision.”