The 36-year-old has been at Wantage Road for 10 years after joining the club in 2006 having begun his career at Essex in 1996 before moving to Worcestershire in 2002.
Peters scored nearly 18,000 runs in 461 first-team appearances and also played for England Under-19s.
At Northants he made his mark early on scoring three first-class centuries in six consecutive seasons as an opening batsman. That total has since reached 22. He also captained the club in the County Championship 2013.
Peters, who is better known as ‘Pedro’ to his team-mates, said “It is with a heavy heart but a clear mind that I have decided to retire from playing.
“The last 20 years have been very special and the memories and friends I have made will stay with me forever.
“To be a professional cricketer is harder maybe then many people realise, the emotional ups and downs of success and failure are never far away but mostly it has been great fun.
“I have travelled the world and realised many dreams along the way but all good things come to an end.
“I would like to thank Essex and Worcestershire but especially Northants where the last 10 years have been fantastic. I wish the club and all the players the very best for the future.
“It’s a small club but with a big heart and it holds a special place in mine.”
“Thank you to all the people who have supporter and followed my career since I was a boy, I hope I gave you some smiles along the way.
“Lastly, thanks to my close family and friends, whose continued support and love has made this journey possible and have always been there when I needed you.”
Northants head coach David Ripley and skipper Alex Wakely paid tribute to the batsman.
Ripley said: “Pedro has been a top professional over many seasons.
“He is a real competitor, never taking a backward step on the field.
“What we shared in 2013 as first team captain and coach will stay with us forever.
“His input into that season was massive and his contribution to Northants Cricket has been much more than a top quality opening batsman.”
And Wakely added: “Pedro has been one of the best opening batsmen in the country over the last few years.
“He has been a loyal servant to the club and has always helped out others whenever he wasn’t improving his own game.
“He has been an exceptional role model for the team and I know many players feel privileged to have played with him.
“I will miss his horrible banter and his terrible jokes but most of all I will miss having an opening batsmen I could rely on day in, day out.
“Any team I played in felt more secure with him in it. I feel lucky to have played with the Pedro and I will always look back on these times with some of my fondest memories.
“I would like to wish Pedro and his family all the best for an exciting future.”