Hejduk, a three-time NHL All-Star and an Olympic gold medallist, had helped the Avalanche win the Stanley Cup in 2000-01, scoring 23 points in the playoffs.
The 38-year-old Czech native, an unrestricted free agent this summer, had not played this season. He had 11 points from 29 games last season.
"I was fortunate to play many years at this level with a great organization and unbelievable team mates," the right winger said in a statement released by the Avalanche.
"I realized my lifelong dream of not only playing in the NHL but winning a Stanley Cup."
Hejduk had 375 goals and 430 assists in 1,020 games with the Avalanche, scoring 20 goals 11 consecutive seasons and notching 50 goals in 2002-03.
He also found success in international competition as a member of the Czech team that won gold at the 1998 Nagano Olympics, the first one featuring NHL players. He also won the bronze medal at the 2006 Turin Olympics.
"Milan was one of the most humble players I ever had the privilege of competing with," Joe Sakic, the Avalanche's executive vice President of hockey operations, said.
"On the ice, he had one of the quickest and smoothest hands of any teammate I ever played with. His release, along with his hockey sense and vision, made him one of the premier goal scorers in the NHL during his prime."
(Reporting by Larry Fine in New York; Editing by Gene Cherry)