The 42-year-old, who won the Grand National in 1999 on Bobbyjo, trained by his father Tommy, had not ridden competitively since September because of a leg injury.
He rode his first winner in 1990 and was associated with top horses like Dorans Pride, Harchibald, Solwhit and Florida Pearl.
He was advised to stop by his surgeon.
"My leg's not strong enough. I feel gutted," he said.
Carberry was renowned as a gifted rider, and a colourful character.
He swung from the rafters at Aintree after his triumph on Bobbyjo, and narrowly escaped jail in 2006 for setting fire to a newspaper on board a flight from Spain to Ireland.
But he was regarded as one of the top jump jockeys of his generation, famed for his horsemanship and patient riding tactics.
Carberry, from County Meath, comes from a family steeped in racing - sister Nina and brother Peter have enjoyed successful racing careers
Fellow jockey Barry Geraghty paid tribute on social media: "End of an era and a big loss to the weighroom. Wishing Paul Carberry a very happy retirement - one of the bravest and most natural jockeys ever."
Frank Keogh, BBC Sport: "Despite coming from rich racing stock, he was known by colleagues and punters alike simply as 'Carberry'.
"Mere mention of the name could illicit a wry smile, whether for his feats in the saddle or his antics out of it.
"Carberry was a go-to rider for top trainers, and enjoyed a successful link with Noel Meade.
"He will be remembered for many great victories, and also an agonising defeat on Harchibald in the 2005 Champion Hurdle at Cheltenham, when his mount appeared destined to win after being delivered with a late charge, but did not find enough to pass Hardy Eustace."
Leading Irish jockey Paul Carberry has announced his retirement from the saddle after a distinguished career.