"To put it in words I think most people can understand: I love working for the people of Indiana, I love helping our citizens make the most of their lives, but I do not love Congress," Bayh said at a news conference in Indianapolis, where he was joined by his wife and two sons.
The departure of Bayh, who was on President Barack Obama's short list of vice presidential candidate prospects in 2008, continues a recent exodus from Congress among both Democrats and Republicans, including veteran Democrats Christopher Dodd of Connecticut and Patrick Kennedy of Rhode Island.
The announcements have sprung up in rapid-fire fashion amid polls showing a rising anti-incumbent fervor and voter anger over Washington partisanship, high unemployment, federal deficits and lucrative banking industry bonuses.
Obama thanked Bayh for his years of public service.
"During that time, he has fought tirelessly for Indiana's working families, reaching across the aisle on issues ranging from job creation and economic growth to fiscal responsibility and national security," Obama said in a statement.
Bayh, who won the seat to the Senate in 1998, attributed his decision to the bitter partisan divides that have dominated Congress in recent years, though he praised his colleagues as hard workers devoted to serving the public.
"My decision should not be interpreted for more than it is, a very difficult, deeply personal one," he said. "I am an executive at heart. I value my independence. I am not motivated by strident partisanship or ideology."
Bayh, 54, said he believed he would have been re-elected this November, despite "the current challenging environment." He said it was time for him to "contribute to society in another way," either by creating jobs with a business, leading a college or university, or running a charity.
His retirement from a Senate seat from Republican-leaning Indiana also adds to the struggle Democrats will face this fall to prevent an erosion of the 59 votes they have in the chamber.
"After all these years, my passion for service to our fellow citizens is undiminished, but my desire to do so by serving in Congress has waned," Bayh said at the news conference.