Ferguson, 71, guided United to 13 Premier League titles and two European Champions League crowns in the 26 years he was in charge at Old Trafford.
“The decision to retire is one that I have thought a great deal about and one that I have not taken lightly. It is the right time,’’ Ferguson said in a statement.
Ferguson, who will remain at United as a director and club ambassador, said he was confident he was stepping down as manager with the squad in good shape.
“It was important to me to leave an organisation in the strongest possible shape and I believe I have done so,’’ he said.
United did not name a successor amid speculation Everton’s David Moyes could fill the Old Trafford hot seat vacated by his fellow Scot.
The former Glasgow Rangers’ striker’s managerial career began with Scottish lower league club East Stirlingshire in 1974 and saw him win 49 major trophies in all.