Lumumba made the decision following several serious concussions during the 2016 season.
The 30-year-old threatened to sue the Demons for failing to provide adequate medical treatment surrounding his concussions.
However, Melbourne is believed to have reached a settlement with Lumumba.
“To receive medical advice that he should no longer play the game he loves has been really challenging for Heritier. Based on this advice, we have agreed to release Heritier from his 2017 contract and are supportive of his decision to retire from the game,” Melbourne’s General Manager of Football Josh Mahoney said.
“Although he can no longer play AFL football, we are pleased that the latest tests have shown that Heritier has been cleared of having any ongoing concussion symptoms and that there are no signs of long term damage.
“We have said all along that the Club has a very diligent concussion management process and as a result, we are confident in how we cared for and managed Heritier during 2016.
“Heritier recently requested some time at the start of this pre-season to gather additional information about his health and we were very supportive of him undertaking this process.
“We thank Heritier for everything he has given to the Melbourne Football Club. He leaves the game as a 200-plus game player, an All-Australian and a premiership player with the Collingwood Football Club, and we wish him all the best for the future.”
Lumumba played a total of 223 AFL games (199 for Collingwood, 24 for Melbourne) in a career spanning 11 seasons.
He played his final game for Melbourne in Round 5 this season.