The thoroughbred was trying to become the first Triple Crown winner in 34 years.
The 3-year-old colt started out the season with little fanfare, but the underdog became the favorite to with the Belmont.
Trainers said they noticed a problem with the colt's leg on Thursday. An examination by doctors on Friday found that the animal had the start of tendonitis.
"Yesterday he galloped great, but in the afternoon, we noticed some loss of definition in his left front leg," trainer Doug O'Neill said. "We did just an easy gallop today. I thought he looked great on the track, and then cooling out, you could tell the swelling was back."
O'Neill said a doctor told him I'll Have Another could race again after 3-to-6 months, but a decision was made to retired the horse.
"It was unanimous between the Reddhams and my brother and I and everyone at the barn to retire him," O'Neill said.
News of the retirement has left the horse-racing world stunned. Experts say fans will miss the electrifying performances he brought to the track, but that the horse will have a successful life when he is put out to stud.
"This is a horse who was bought for $35,000 at public auction in Florida a year ago April. Coming out of the Preakness, he was probably worth somewhere between $12- and $15 million," said Mike Willman, Santa Anita Park spokesman. "It's a blow to everyone involved."