It had long been thought the veteran striker, who has spent his entire career with the Spanish giants, was set to leave this summer, with Schalke heading the race for his signature.
It was announced earlier this week that Raul would hold a press conference on Monday and the club have now confirmed it will be a farewell act.
A statement on the official website announced it would be a farewell celebration for their captain, who they are keen to see off in style following 16 seasons in the first team.
Raul, who has been at Madrid since joining their youth team in 1992 and is the club's all-time top goalscorer, signed a life contract in 2008 which sees his deal automatically renewed should he play at least 30 games a season.
The 33-year-old achieved that in 2009/10 but, with his influence on the pitch waning following an influx of big-name players last summer and more seemingly set to follow in the coming months, he has decided to quit the Bernabeu.