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Warne, 38, who was scheduled to lead Hampshire again in the English county championship this year, told the club's Web site (www.rosebowlplc.com) he was retiring from the first class game.
"I am retiring from all first class cricket but will participate in the IPL with the Jaipur franchise as captain and coach," he said.
"This was not an easy decision to make but due to some exciting business opportunities, and wanting to spend more time with my children, I had to make this call."
Warne, who took 708 wickets in 145 tests, was one of the Wisden Almanac's five cricketers of the 20th century and was largely responsible for the revival of wrist spin as a potent weapon in international cricket.
An accomplished showman with his bleach blond hair and command of centre stage when at the bowling crease, Warne was supremely skilled, fiercely competitive and a shrewd tactician.
He made his debut for Hampshire in 2000 and took 276 first class wickets at an average of 25.59 while scoring 2,040 runs.
"I know this will be a major disappointment to many fans of both Hampshire and Shane but, after much discussion and soul-searching, it has become clear to both of us that Shane can no longer make the commitment required to continue to lead Hampshire," Hampshire chairman Rod Bransgrove said.
"Hampshire Cricket has been hugely privileged to have enjoyed the unstinting loyalty of this living legend since 2000. The most effective and entertaining bowler of all time, Shane Warne was also a brilliant leader and strategist."
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