Hendry, thrashed 13-2 by fellow Scot Stephen Maguire, had shown flashes of his best form during the tournament, thrashing reigning champion John Higgins in the last 16, but was a shadow of his former self as he slipped out in emphatic fashion.
The 43-year-old immediately announced he was hanging up his cue for good.
“I am officially retired now from tournament snooker,” he said at Sheffield’s Crucible Theatre. “I made the decision about three months ago.”
Hendry, who turned professional as a 16-year-old in 1985, won his first world title in 1990, beating popular Londoner Jimmy White, to begin a period of dominance that kept him at No.1 in the rankings until 1998.
His attacking style and pure potting ability made him one of the most attractive players to watch and he bounced back in 1999 to win his seventh and final world crown.
During the past decade Hendry’s star began to wane and he was overtaken by a new generation of players including Ronnie O’Sullivan and Higgins.