Ms Wallace, a TD for Meath East, announced her decision at lunchtime yesterday, saying that she was "relieved".
"Having laboured extensively over this very difficult decision, I can honestly say that I now feel somewhat relieved," she said.
Ms Wallace added that after 30 years in public service, she was looking forward to a new chapter in her life.
Ms Wallace, 51, is the fourth Fianna Fail politician in a week to announce their impending retirement. The others were the former minister Michael Woods and ministers Michael Finneran and Tony Killeen.
Ms Wallace is entitled to a full TD's pension of around €53,000 on her retirement, as well as a ministerial pension based on her years of service in three portfolios. She is also entitled to a termination lump-sum payment of about €16,400 and a sum paid each month for the first year of retirement, worth an estimated €63,000. She is also entitled to a pension lump sum of up to €160,000.
Billy Cleary, chairman of the Dunshaughlin Fianna Fail organisation, said he believed Ms Wallace would have been re-elected. He said her reasons for standing down did not include "the campaign challenges ahead -- challenges I know she would relish."
Ms Wallace was first elected to Meath County Council aged 22, became a senator in 1987 and was elected to the Dail in 1989. She has served as minister of state in the departments of justice, health and agriculture and food.
Taoiseach Brian Cowen said yesterday that Ms Wallace was "a very hard-working and productive representative" for the people of Meath.
"Throughout her time in Leinster House, she has been a popular and respected colleague and I want to thank her today for the courtesy and friendship she has always shown me," he said.
Mary Wallace's departure from politics leaves her party colleague Thomas Byrne as the only sitting TD in the constituency who will contest the election. Fianna Fail holds two seats in the three-seater constituency of Meath East but it was widely believed that the party would struggle to hold on to both. The third seat is held by Fine Gael TD, Shane McEntee.
He said yesterday that he had long suspected Ms Wallace would not stand again.
"We all worked well together in the constituency," said Mr McEntee. "One thing I was very disappointed on was when she voted against the Ward Union Hunt."
Mr McEntee was referring to the ban on stag hunting. Despite speaking out against the ban, she voted for it on the day.
Christy Reynolds, chairman of the Ward Union Hunt, said yesterday that while Ms Wallace had been a great supporter of the hunt, "She let us down on the day of the vote."