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However, the 36-year-old, who made his debut for Notts in 1996, will continue to captain the club's second XI.
"Playing for Nottinghamshire in first-class cricket has meant an enormous amount to me," Franks told the Nottinghamshire official website.
"The shirt and the cap really matters. It's now about closing a chapter and moving into a new one."
That new chapter will include continuing to captain the second XI, whom he led to the Championship title in 2015.
"The work we're doing with the young players in the academy team and second XI is going from strength to strength and will continue to do so," the right-arm seamer added.
Franks retires - a day after team-mate Gary Keedy announced his own retirement - having taken 524 first-class wickets in 215 matches at an average of 33. He also claimed 11 five-wicket hauls.
He became the youngest bowler in Nottinghamshire's history to score a hat-trick when he dismissed Trevor Penney, Dougie Brown and Graeme Welch against Warwickshire at Trent Bridge in 1997, and also scored 7,185 first-class runs at an average of 28 with four centuries and 41 half-centuries.
"For many years Paul's been a stalwart of the first team," said Notts director of cricket Mick Newell. "He's made a terrific contribution with ball and bat."
In addition to personal success, Franks enjoyed team triumphs during his Notts career, winning the County Championship title in 2005 and 2010, and being part of the promotion sides of 2004 and 2007.
Veteran Nottinghamshire all-rounder Paul Franks has announced his retirement from first-class cricket.

The 25-year-old was carried off on a stretcher with a head knock just before the break at McDiarmid Park.
Clark collided with Jack Rodwell as the midfielder had a goal disallowed.
The Perth club confirmed on Twitter that the keeper was released from hospital on Saturday night, although he is suffering from a concussion.
Also on Twitter, Clark revealed he was "stiff and groggy" and thanked staff at Ninewells Hospital for taking care of him.
In Saturday's match, Steven MacLean fired Saints into the lead after 18 minutes and two more from David Wotherspoon within another six minutes put the Perth side in command.
St Johnstone goalkeeper Zander Clark is out of hospital after picking up an injury in a 3-0 friendly win over Sunderland.

Chris Coleman's side are now above the Netherlands, who have dropped down to 12th.
England have also climbed a place to eighth. Scotland are down to 32nd and Northern Ireland also drop to 40th.
Argentina remain in the number one spot, with Belgium back up to second and Germany in third.

Wales have moved up one place in the latest Fifa football rankings to a new high of ninth.

