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The Aberystwyth-born flanker played his last game in a Scarlets shirt against the Dragons on 23 October, 2009, and won his last Welsh cap against New Zealand as a replacement on 7 November the same year.
"This has been a really tough time for me and my family and it's a very hard decision to retire from rugby. It has been the sport and career I've known and loved since I was a teenager and all my efforts have gone into playing rugby for the Scarlets and for Wales," said Jones.
"I'm very proud of, and enjoyed, everything I have done in the game and it has taken a while to sink in that I'm not actually going to be playing any more. But the decision was really made for me as the medics said there was no way back from the damage caused by the injury.
"The good thing is I have great memories of playing. I'm lucky that I've played alongside, against and worked with some world-class rugby greats.
"I've had great opportunities as a player - a World Cup in 2003, being part of the Wales squad for the 2005 Grand Slam and then there's the 2004 international against the All Blacks and being up against Richie McCaw. I won't forget that contest!
"There have been lots of great Scarlets highlights. Beating Northampton at Franklin Gardens and the Toulouse back-to-back wins in Europe and I was also part of a Magners League title win as well."
Over the next six months Jones will undertake various roles within the Scarlets region to develop his non-rugby skills and experience. These roles will include assisting with the Academy, working within the community department to help inspire young players of the future and sponsor relationship duties.
Jones' love affair with the Scarlets began when he made the first of his 201 senior appearances against Leeds on St Valentine's Day in 1997. He went on to score 24 tries and won 115 of his outings in the famous scarlet jersey.
His Wales debut came against Fiji on 9 November, 2002 when he became the 165th Scarlet player to play for Wales. He scored two tries for his country, against Italy and Romania.
"He was a formidable player to have in your squad, a guy you could rely on who had huge guts and spirit. He's been a firm favourite amongst players and supporters alike for his brave, honest and down-to-earth attitude," said Scarlets head coach Nigel Davies.
"He's been a committed Scarlet with a real belief in Scarlets rugby and our values. He's rightly a local hero in West Wales and has undoubtedly inspired many younger rugby players get involved in the game."
Scarlets supporters will have the opportunity to show their appreciation and respect for Dafydd Jones at their next home game - the vital Heineken Cup clash with Leicester Tigers on Saturday, 15 January (5.45pm kick-off).
