Kessler won 29 caps, scoring 10 goals, and played in the team who won the 2013 Women's European Championship.
She also won four league titles and three Champions Leagues and was the 2014 World Player of the Year.
"It's very difficult for me to accept the fact that I have to retire," Kessler said. "I had a profound love for the game."
Kessler, who enjoyed success with Turbine Potsdam before joining Wolfsburg in 2011, added: "Now I am looking forward to new challenges and prospects."
Germany coach Silvia Neid said: "This is obviously a huge loss for women's football in Germany.
"Nadine Kessler has outstanding footballing ability and an incredible personality - a role model both on and off the pitch."
Kessler has not played since coming on as a substitute in Wolfsburg's 3-0 win at Bayer Leverkusen on 21 September 2014.
Wolfsburg and Germany midfielder Nadine Kessler has been forced to retire at 28 because of a knee injury.