Jones, 33, who once enjoyed a reputation as the world's most feared batsman in one-day matches, will continue to play for Victoria in the Sheffield Shield and the English county, Durham.
'I always wanted to play Test cricket for Australia but time was running out,' Jones said. 'I spoke to my family and I have decided that I've had enough of the travelling and running around. I have no regrets about giving it away.'
Jones, who averaged 46.55 in his 52 Test appearances since his debut against the West Indies in 1984, was picked as a specialist one-day batsman for the South African tour, but he managed only one half-century in seven limited-overs appearances and was dropped for final game of the series, which was drawn 4-4. In all, Jones played 164 one-day internationals, scoring over 6,000 runs.
The Australian coach, Bob Simpson, described Jones' retirement as 'a huge loss to Australian cricket'.