The 65-year-old, who had also served in the House for eight terms, said she came to the decision in part after reflecting on the increasingly rancorous climate in Washington.
"I am a fighter at heart, and I am well prepared for the electoral battle," she said in a statement. "Unfortunately, I do not realistically expect the partisanship of recent years in the Senate to change over the short term. So at this stage of my tenure in public service, I have concluded that I am not prepared to commit myself to an additional six years in the Senate."
Snowe becomes the 10th senator to announce plans to retire at the end of the current term, and only the third Republican.
Democrats are defending a narrow 53-47 advantage in the 2012 elections. Snowe's surprising decision potentially gives the majority party a much needed opportunity to pick up a Republican seat.
"Maine has a proud history of electing independent leaders, including a Republican Governor in 2010, and while this will be a key battleground in the fall, I am confident it will remain in Republican hands," National Republican Senatorial Committee chairman John Cornyn said in a statement.
Newly-published vote ratings from the National Journal put Snowe squarely in the ideological center of the Senate. Only her fellow Maine Republican, Susan Collins, ranked as a more liberal Republican member.
In a separate statement, Collins said she was "devastated" by the news.
"Olympia could always be counted on as a leader who sought solutions, not political advantage. She served our nation with distinction and she continues to bring honor to our state," she said.