Crowe, 33, returned from New Zealand's tour of India in November with injuries to both legs. He was told by selectors he needed to play two domestic matches to prove his fitness before the World Cup but was unable to play even one.
"In the end it's just too painful and too hard to continue at the level that I'd like to play at," Crowe said. "I had no choice at this stage but to stand down."
In 77 Tests, starting in 1981, Crowe scored 5,444 runs, including 17 centuries, at an average of 45.36. He scored more runs and centuries than any other New Zealander.
His 299 against Sri Lanka in 1991 is the highest Test innings by a New Zealander and contributed to a world Test record for a third-wicket partnership of 467 with Andrew Jones.
Crowe captained New Zealand in 16 Tests and to the semi-finals of the 1992 World Cup, when he was named player of the tournament.
For much of the 1990s a recurring injury to his right knee prevented him from playing a full part in New Zealand's Test programme.
Crowe was signed by Somerset in 1987 and scored 1,627 runs in the season at an average of 67.79 before injury forced him to terminate his contract.
Allan Lamb will play one last season for Northamptonshire before retiring from first-class cricket. The 41-year-old relinquished the captaincy at the end of last summer but intends to accept a new one-year contract.Reuse content