Ensign, who is under investigation by the Senate Ethics Committee, said he decided last week against seeking a third term because he was worried about the effect of an "exceptionally ugly" campaign on his family.
"I'm putting them first, instead of my career," Ensign said.
In recent months, Ensign had been adamant that he would seek re-election. He said Monday it was difficult to give up the job he loved, but "I have learned through the mistakes I have made that there are consequences to sin."
Ensign, 52, acknowledged in June 2009 that he had an extramarital affair with Cynthia Hampton, a former member of his campaign staff, and that he had helped her husband, Doug Hampton, a member of his congressional staff, obtain lobbying work with a Nevada company.
Ensign insisted the ethics investigation didn't affect his decision to retire, and he again denied he broke the law or ethics rules.
"It had zero effect," the senator said. "If I was concerned about that, I would resign. That would make the most sense, because then it would go away."
Elected to the House in 1994, the former veterinarian preached family values, Christian fellowship and fiscal responsibility.
"Nevadans are thankful for his service, and I wish him well," Sharon Angle, a tea party Republican who lost a Senate bid to incumbent Democrat Harry Reid in November, said in a Twitter message.
A call to Angle to ask if she would seek the open seat was not immediately returned.
Sen. Jon Cornyn, R-Texas, chairman of the National Republican Senatorial Committee, said the race to replace Ensign would come down to two competing visions for the country, and the GOP candidate who believes in smaller government would prevail.
National Democratic officials said Nevada was near the top of their target list for a Democratic win in the Senate next year.
"Whoever Republicans field as their candidate will have a tough time holding onto this seat in a blue-trending state with President (Barack) Obama at the top of the ticket," said Guy Cecil, executive director of the Democratic Senatorial Campaign Committee.
Dan Albregts, an attorney for the Hamptons, did not immediately respond to phone and e-mail messages seeking comment.
More than a dozen family members and supporters flanked Ensign during his brief announcement. His wife Darlene Ensign stood next to him, reassuringly patting his back at moments.
Ensign acknowledged repeatedly in recent months that he was prepared for a tough election campaign, in which he was expected to face Rep. Dean Heller or Nevada Lt. Gov. Brian Krolicki in the GOP primary.
Ensign could have faced an equally brutal general election fight. A roster of popular Democrats including Rep. Shelley Berkley of Las Vegas, Secretary of State Ross Miller and Attorney General Catherine Cortez Masto were named by party leaders as prospective rivals.
Ensign said he attended 348 events in Nevada last year and was preparing to surpass that record this year.
"I had fully planned until last week: I am running for re-election," Ensign said. "I just came to the conclusion that I just couldn't put my family though it."
Jennifer Duffy, a "Cook Political Report" senior analyst who recently declared Ensign the nation's most vulnerable incumbent, said he likely would not have survived a primary.
"It was inevitable," she said of his announcement.
With Ensign's exit, Heller, Nevada's former secretary of state, could emerge as the front-runner, Duffy said.
"He held statewide office for 12 years," she said. "Unlike many members of Congress, he is pretty well known statewide."
Heller said he and his wife wish Ensign the best.
"This must have been a very difficult decision for John to make," he said.
Ensign's announcement did not dampen criticism from the watchdog group Citizens for Responsibility and Ethics in Washington. The organization called for the Senate Ethics Committee to continue its investigation and not use the announcement as a reason to drop it.
"Unless and until Sen. Ensign resigns, the investigation should proceed full-steam ahead," said Melanie Sloan, the group's executive director.
Ensign's decision sent shockwaves through Nevada's political circles, with some leaders expressing an interest in the open seat.
"Today is a day when all Nevadans should be grateful to Senator Ensign for his consistent and conservative votes in the United States Senate," Krolicki said, adding that he and his family are considering their options.
Berkley said Ensign's announcement was not unexpected.
"I am not surprised," she said. "I think John could have gone either way. I know up until a couple of weeks ago, I spoke to him, and he told me he was definitely running for election."
Berkley said the announcement will likely allow Republicans to rally around a front-runner and avoid a nasty primary. She said she is still weighing her options.
"I am taking my time with this decision," Berkley said.
Once elected with 55 percent of the vote, Ensign's admission that he cheated on his wife seemingly marked the beginning of his political downfall.
In just two terms, he had gained a foothold in the GOP's Senate leadership and had been discussed as a potential presidential candidate.
"If there was ever anything that I could take back in my life, this would be it," Ensign said at the time. "I violated the vows of my marriage."
Amid the scandal, Ensign's parents provided the Hamptons with $96,000 that the parents described as a gift. Ensign also helped find Doug Hampton a lobbying job.
The Justice Department and the Federal Election Commission investigated then dropped the cases with little explanation.
The Senate ethics panel, however, recently named a special counsel to look into the matter.