Poysden joined from Warwickshire in 2018 and made 19 first-team appearances across the three formats.
Poysden suffered a fractured skull in training in 2019, and the club recently signed Dom Bess as first-choice spinner.
“It’s been an absolute honour to be a professional cricketer,” said Poysden.
“I didn’t have the most straightforward journey into the game, coming through club and university cricket, so to go on and represent two of the biggest counties, Warwickshire and Yorkshire, over the past eight years has been an amazing journey.
“There’s a lot I’ve achieved that I’m very proud of, but I am most grateful for what the game has given me.
“It has taught me so much, given me some special memories, but most importantly I’ve met some brilliant people who I know I will call friends for life.
“It wasn’t an easy decision to retire, but something that I’d been considering for a while, and I feel now is the right time to move on.
“I’m excited to get stuck into the next chapter, and to pursue something away from playing cricket.
“I want to express my huge gratitude to everyone at Yorkshire. The club is filled with great people throughout, and everyone has always been there for me through the ups and downs.
“I particularly want to thank Frog (director of cricket Martyn Moxon) for his support, and I’ve loved playing under Galey (first-team coach Andrew Gale).”
Poysden went on: “I wish the club nothing but the best going forward. It’s great we are in the T20 quarters and have made the top division in the Championship, so hopefully there is a big finish to the season.
“Over recent years I’ve seen first-hand the wealth of talent that is coming through, so I look forward to following the club’s successes in the years to come.
“Lastly, I want to thank all of my family and friends for their support over the years, especially my mum and dad, my sister Zoe, and my fiancé Caitlin.”
Martyn Moxon commented: “We absolutely respect Josh’s decision to retire at this stage of the season.
“It’s a shame that things haven’t quite worked out for him at the club, especially after the horrific injury in 2019 when he suffered a fractured skull.
“The following year we were caught up in Covid regulations, so Josh hasn’t had a whole heap of opportunities.
“He has been a great influence on-and-off the field and a highly respected member of the squad.
“Josh is a lovely person and we wish him all the best for the future.”