In an e-mail announcement, Webb said he would return to the private sector, but offered no additional details of his plans.
A former Navy Secretary, Webb was elected to the Senate in an upset in 2006, ousting Republican Sen. George Allen.
Allen is attempting a comeback in 2012, although he faces primary opposition.
Democrats, with a 53-47 majority, must defend 23 Senate seats next year, including two held by independents, and many are in swing states where Republicans hope to mount strong challenges.
By contrast there are only 10 GOP-held seats on the ballot in 2012.
In his e-mail, Webb said, "I have every intention of remaining involved in the issues that affect the well-being and the future of our country."
Since taking his seat, Webb has focused much of his energy on international issues.
"Among other contributions, we have given our Post- 9/11 veterans the best GI Bill since World War II. We have taken the lead in reforming our criminal justice system. We have led the way toward stronger relations in East and Southeast Asia," he said.
"And we have been a strong voice in calling on China to act more responsibly in the world community."
Earlier in his career, Webb was a combat Marine in Vietnam, a lawyer, congressional aide and a published author. His appointment as Navy Secretary came from President Ronald Reagan, a Republican. But when the Naval Academy graduate made his only run for public office, it was as a Democrat.
Webb is the fourth senator to announce plans to retire. The others are Sen. Kent Conrad, D-N.D., Sen. Kay Bailey Hutchison, R-Texas, and Sen. Joseph Lieberman, I-Conn.