The official confirmation of the 57-year-old general's retirement plans came from Defense Secretary Donald Rumsfeld.
In a statement, Mr. Rumsfeld said General Franks wanted to step down as commander of the U.S. Central Command in the weeks immediately ahead and to retire later this summer.
He said General Franks, a Texas native, has served the country with "great distinction." Mr. Rumsfeld said he considers it a privilege to have worked closely with him.
General Franks also won praise from President Bush for his handling of the operation in Iraq to oust Saddam Hussein as well as the earlier effort to oust the Taleban and destroy al-Qaida terrorist bases in Afghanistan.
He had been viewed as a possible future Chief of Staff of the Army, the Army's highest military position.
But his wife, Cathy, this week told a Florida newspaper he had instead decided to retire, fulfilling a promise to her. She is quoted as saying the general is "very ready" for life as a civilian after a military career that began in 1967.
During his 36-year career, General Franks served in Vietnam, South Korea and Germany as well as posts in the United States.
He took over as commander of the Central Command, based in Florida, three years ago.
General Franks' awards include three Bronze Star Medals for valor and three Purple Hearts for combat wounds.
No successor has yet been named for General Franks. But his current deputy, Army Lieutenant General John Abizaid, is viewed as a likely candidate to take over the Central Command, which is responsible for U.S. forces and military operations in the Middle East, Central Asia and the Horn of Africa.