The Swans defender announced the news to his teammates on Wednesday, citing his ongoing back injury as the main reason for his retirement.
Grundy won a premiership with the Swans in 2012, and has played 256 games for the club since making his debut in round 1, 2006.
“Heath has been an unbelievable servant of our club for a long time and there’s no doubt he will be missed,” Sydney coach John Longmire told the club’s website.
“In terms of leadership, Heath set an example for all of us with his meticulous preparation, dedication and passion for his craft.
“Each week he’d line up on the opposition’s most damaging and biggest forward – and he’d just get the job done.
“He’s a premiership player and a champion of our club. We wish Heath, Elise, Reggie and Jameson all the best for the next phase of life.”