The 1998 Super-G Olympic champion started the Wildflower course strongly but faded as she neared the finishing line.
"This is the last race of my career," the 30-year-old confirmed after finishing a long way behind winner Carole Montillet.
"I'm not going to have to live without skiing.
"She is one of the great skiers and a very good person"
Bronze medallist Renate Goetschl on Street
"I'm just going to have to live without trying to be perfect on my skis everyday, which is wonderful."
Street was trying to become the first American woman to win three Olympic skiing medals following a silver in Lillehammer and her gold four years ago.
The downhill was her one chance to add to that tally as she failed to make the qualifying grade for the Super-G.
"I think I gave it all I had and what I had wasn't good enough for a medal, but it was a wonderful last day of my career.
"In my eyes and my heart, qualifying for the Olympics felt like winning a gold medal.
"What a great way to go out, before a crowd like this - it's crazy good.
"This is the best day in my ski racing career and it's because of you. Thank you," she said.
Austria's Renate Goetschl, who win the bronze medal, told BBC Sport Online: "All the women will miss her. She is one of the great skiers and a very good person.
"But I'm sure she will have a good life after skiing."
Britain's representative in the downhill, Chemmy Alcott, said: "Picabo waited at the end of the run to hug all the competitors which I thought was really nice of her. It is a shame that she is retiring but she has given the sport so much."