The colt, trained in France by Jean-Claude Rouget, won the French Derby,Irish Champion Stakes and Champion Stakes at Ascot in 2016.
He had been training as a four-year-old with the aim of running in October's Prix de l'Arc de Triomphe, but finished only fifth at Deauville last Tuesday.
"It was not an easy decision to take," said Sylvain Vidal, racing manager for part-owner Gerard Augustin-Normand.
"But everyone was in 100% agreement that it was the right thing to do.
"The plan was to go to the Arc, but after his performance last week we could not have gone there expecting to win.
"He was a very good horse and was the best three-year-old in Europe. He has done everything he needs to do on a racecourse."
Almanzor won eight times in 11 starts and earned more than £2.1m in prize money.
Stud details will be announced in the coming weeks.
Almanzor, last season's champion three-year-old, has been retired to stud.