Williams, 35, played his entire 13-year NFL career with the Bills after being selected in the fifth round of the 2006 draft. He was selected to the Pro Bowl five times, most recently in 2016.
"I've had a front-row seat the last [two] years to watch him, his habits and what he's been able to do inside the building, outside the building," coach Sean McDermott said Friday. "He's a guy that personifies what we want to be about as Buffalo Bills.
"We'll miss Kyle. You can't replace a guy like Kyle. They come around once in a career."
The longest-tenured player on the Bills roster, Williams will have appeared in 183 career games, the most by any defensive tackle in franchise history. He is also one of six players in team history to play 13 or more seasons.
"I could not be more grateful to retire as a lifelong Buffalo Bill," Williams wrote in a letter to fans on the team's website.
Williams, a team captain, informed McDermott of his decision Monday.
"I told him it was the worst Christmas present a man could get," McDermott said Friday.
Williams' 48.5 career sacks are the most by a defensive tackle in franchise history. In 15 games this season, Williams has five sacks and one forced fumble while leading Buffalo's defensive tackles in snaps played.
"I respect Kyle more for doing what he's doing because of the reason that he's doing it, and that's his family," McDermott said. "He knows that we're heading in the right direction. Kyle can still play. That's a hard decision to make, but putting his family first really to me is befitting of a man like Kyle.
"You see players hang on and continue to get identity from this game, and he's more than that. He's bigger than that."
Williams will become an unrestricted free agent in March. Among the candidates to replace him in the starting lineup will be 2018 third-round pick Harrison Phillips, who played a rotational role at defensive tackle this season.
McDermott said he discussed a future role for Williams in the organization but nothing has been finalized.