Nieuwendyk, who won three Stanley Cup titles and helped Canada capture an Olympic gold medal in 2002, missed 14 of the Panthers' first 29 games this season because of the injury. He made the decision to retire when doctors told him that his back simply wouldn't improve.
"It's always very hard to walk away, but I was told that this is the best thing for my future," Nieuwendyk told the Miami Herald.
The center finished his career with 564 goals and 562 assists in 1,257 games.
"He was an all-around elite player," said Montreal general manager Bob Gainey, Nieuwendyk's coach and GM with the Dallas Stars. "He is the kind of player whose accomplishments merit consideration for the Hall of Fame."
Nieuwendyk, 40, visited a back specialist last week and told Panthers coach Jacques Martin of his choice to retire on Monday. Players were told Wednesday morning before practice.
"Joey was a great player and as great a player as he was, he was an even better teammate," said Brett Hull, now the assistant to the president of the Stars. "He got along with everybody, was very classy, unbelievably skilled and clutch."
The Panthers (9-15-1-4) are second to last in the 15-team Eastern Conference with 23 points.
Nieuwendyk spent the first nine seasons of his NHL career with the Calgary Flames and then played parts of seven seasons with the Stars. He also played for the New Jersey Devils and Toronto Maple Leafs before he and longtime friend Gary Roberts signed with the Panthers before the 2005-06 season.
"Joe was a great player and a class act and I really enjoyed being around him both on and off the ice," said Stars forward Mike Modano, a former teammate. "He is a very close friend, and I'm sorry to see him hang up the skates. But I'll know he'll succeed in whatever he does following his career."
Nieuwendyk was the 1999 Conn Smythe Award winner -- given to the MVP of the NHL playoffs -- while helping the Stars win the Stanley Cup. He also helped the Flames win the Cup in 1989 and was part of the Devils' third Cup-winning team in 2003.
"He brought a different aspect to our team," Devils goalie Martin Brodeur said. "He was one of the great centermen I played with. He was a leader who blended in right away."
He finished his career ranked 19th on the NHL goal list and tied with Hall of Famer Mike Bossy for 48th place with 1,126 points.
"You don't see a lot of players have the kind of career he did with very strong personal accomplishments on very strong teams," Gainey said.
Information from The Associated Press was used in this report.