The 37-year-old said he would step down with "immediate effect" during a news conference in his home city of Hyderabad, where India host the Kiwis in the opening test on Thursday.
"It's been 16 years since I made my international debut for India and I feel it's the right time for me to move on," Laxman told reporters in a trembling voice.
Laxman scored 8,781 runs in 134 tests, including 17 hundreds.
His recent form, howver, has been poor and clamour had grown in the Indian media to replace India's ageing batting stalwarts following 4-0 series whitewashes in England and Australia.
"I have always kept the country's success and needs ahead of my personal aspirations and I would have loved to contribute to the team's success especially against England and Australia later in the season," Laxman said.
"I think it's the right time to give opportunity to a youngster in home conditions before the tough overseas tours next year."
Former India captain Rahul Dravid was the first of the senior batsmen to retire from the longer format after the team slumped to eight consecutive test defeats away from home.
Sachin Tendulkar is the last from the golden generation of Indian batsmen to still play for the country.
COMMENTS (5)
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Very very special laxman was a sweet timer of ball and a absolute delight to watch, india will surely miss him, wish him all the best!
A great player....crispest of driver and puller....a sight for sore eyes...I loved him.....coming from a true cricket lover from lahore
Indian selectors are biased and they pressured him to retire.Entire team has failed in overseas and why only Laxman was punished.Schewag,sachin &Gambir physically unfit and still they are automatically selected..
He will be remembered as a cricketer who elevated batting to a form of fine art. The only South Asian to figure in the Wisden's 10 best innings in the history of the game. A self-effacing gentleman, he always placed his team's interests above his.
Most graceful batsmen who ever played for India along with Azharuddin. Will be really missed by all cricket fans. Also, with Dravid and VVS now gone, and Tendulkar to follow suit soon, the last legion of classical test batsmen will effectively come to an end as far as India is concerned. The new generation of batsmen are all one day cricket and T20 oriented batsmen.