Williams revealed the news to his almost 30,000 followers on the social networking site by posting a link to a video and the message: "It's that time".
On the video he said: "I'm hanging up the black jersey. It's been an amazing 10 years but it's time to call it quits.
"But I'm not hanging up the boots yet," he said.
The video was also posted on the Blues Rugby YouTube channel.
The news prompted tweets of support from fans.
"Congrats Ali on a long, successful international career! You'll be well missed," said one.
"Congrats and respect for your career from a Blues fan in France, we're gonna miss seeing you with the All Blacks jersey," said another.
Williams' wife Casey also tweeted a message of support about her husband's decision: "Incredibly proud of the hubby as he says goodbye to his All Black career today", she said.
Williams played in three Rugby World Cups and gained a winners medal after the All Blacks' victory over France in the 2011 final.
The 32-year-old was part of the 38-man All Blacks training squad in Tauranga this week ahead of the three test series against France next month.
He will continue to play for the Blues.
All Blacks head coach Steve Hansen congratulated Williams on his career in the All Blacks and said he respected Williams' decision to retire and go out on his terms.
"By retiring he is doing what's best for the All Blacks and showing a tremendous amount of integrity by putting the team ahead of himself.
"He knew he may have been selected for the All Blacks again this year, but he also knows that it is better for the team to have a younger player in the position.
"Ali has been a fantastic All Black. He is a player who has always worn his heart on his sleeve, he is a real character who loved being an All Black and wearing the jersey proudly and representing his country, and that's what we love about him."
His 77 test caps include 16 tests against Australia, 14 against South Africa and 11 against France.
New Zealand Rugby CEO Steve Tew said Williams has been a great servant of New Zealand rugby.
"He still has a lot to offer the game here, is obviously making an outstanding contribution to the Blues and wants to continue doing that which is great for New Zealand rugby."
