The acclaimed stage and screen star said he was taking his last bow "dry-eyed and profoundly grateful" for his half-century long career.
"It is time for me to chuck in the sponge. To retire from films and stage. The heart for it has gone out of me: it won't come back," O'Toole said in a statement cited by People magazine.
"My professional acting life, stage and screen, has brought me public support, emotional fulfillment and material comfort," he said.
He added: "It has brought me together with fine people, good companions with whom I've shared the inevitable lot of all actors: flops and hits.
"However, it's my belief that one should decide for oneself when it is time to end one's stay. So I bid the profession a dry-eyed and profoundly grateful farewell," he added.
Irish-born, blue-eyed Peter Seamus Lorcan O'Toole was raised in northern England the son of a bookie. After school, he initially became a journalist and a radioman for the Royal Navy, before deciding to be an actor.
He attended the Royal Academy of Dramatic Art, where his classmates included Albert Finney, Alan Bates and Richard Harris, who would also go on to illustrious acting careers.
O'Toole's first stage role came at the age of 17. He started out on stage in Bristol and London, notably performing in Shakespeare dramas before his big break in director David Lean's "Lawrence of Arabia" (1962).
Medical problems, which were initially attributed to heavy drinking but turned out to be stomach cancer, threatened his career and life in the 1970s, but he overcame them after giving up alcohol.
He received eight Oscar nominations during a career that also included noted roles in 1979's "Caligula" and "The Last Emperor" (1987), but never won the top prize itself. He was given an honorary Academy Award in 2003.
O'Toole nearly refused the award, asking the Academy of Motion Picture Arts and Sciences to delay his honorary Oscar until he was 80, saying in a letter: "I am still in the game and might win the bugger outright."
But he finally accepted, and told the Oscars show audience: "I have my very own Oscar now to be with me until death us do part," according to CBS.
In later years, he was acclaimed for his turn in a stage and TV movie version of "Jeffrey Bernard is Unwell," about the infamously alcoholic and bohemian British journalist.
The Washington Post's entertainment blogger Jen Chaney said it was too early for O'Toole to retire, because he was so much fun.
"O'Toole turns 80 next month. Given his age, his more than five decades in the industry and the impressive filmography he's amassed, he obviously has earned the right to retire if he wants to," she wrote.
"But I wish he would reconsider because the world of cinema, as well as the media outlets that cover it, needs more Peter O'Tooles," she added, citing stories from his colorful life including starting an interview with TV talk show host David Letterman smoking a cigarette while riding a camel, then making the beast drink a can of beer.
And during a 1978 Washington Post interview, O'Toole stood in front of the newspaper's reporter wearing nothing but a pair of boxer shorts, declaring: "There's no truth to the rumor that I'm dead," she noted.
Now that he is retired, O'Toole -- who will be 80 years old on August 2 -- will focus on writing a third volume of memoirs, People reported.