The visually-impaired skier, 23, won four medals at the Winter Paralympics in Sochi earlier this year.
Her guide, Caroline Powell, will also retire from the sport.
“We will be sad to leave the Paralympic Alpine Skiing programme and we will both miss our sport and athletes on the team,” said Etherington, who is training to be a geography teacher.
Etherington, from Lincolnshire, and Powell, from Essex, won silvers in the downhill, slalom and super combined, plus a bronze in the super-G in Sochi.
They were the first British women to win a Winter Paralympic medal on the snow.
“Caroline and I now wish to follow different paths which we feel will be more fulfilling for us in the long term, Caroline with her instructing in Switzerland, while I would like to complete my qualification as a teacher and increase my motivational speaking,” Etherington said.
“It was an honour to represent ParalympicsGB and to make history at the Sochi 2014 Winter Paralympics.”
Etherington had said after her Sochi success that she faced a “tough decision” over whether to compete at Pyeongchang in 2018, with funding a major issue.
Her grandfather revealed in April that competing in Sochi had left Etherington with a “large, large debt”.
Etherington added: “It is hard for me to sum up my last six years on the team but I have enjoyed my time, from my personal and athlete development to making some friends for life.
“We hope the future team gets the support they deserve and strives toward Pyeongchang 2018.”