The former Liverpool forward has struggled to regain full fitness since damaging his knee against MK Dons in 2011 and has decided to quit following medical advice.
"I have agreed to keep lines of communication open with Graham Westley just in case I come across a miracle cure but realistically, and regrettably, this is the end of my playing days," said Mellor, 29.
Preston manager Westley added: "The team's record without Neil this season says everything about the man and character that he is. I'm gutted that I didn't get the chance to work with him beyond his cameo against Bury.
"He has had a tough decision to make, but he has no real choice in the matter. Everybody here will wish him the very best."