The 28-year-old informed National Coach Hope Powell of her decision before the squad met up ahead of this Saturday's international match against USA at Matchroom Stadium.
Chapman has earned 82 international caps and has scored eight goals, her most recent strike coming against Spain at The Den last April, the game's only goal.
She was a key member of the England squad that featured in three consecutive major tournaments; the 2005 and 2009 Euros and the 2007 World Cup.
Chapman will continue to play for Arsenal during her international break.
Everton forward Natasha Dowie has replaced Chapman in the current squad.
Powell said: "With two young children and her commitments at Arsenal, Katie has understandably found it difficult to juggle her family life and her football.
"She has been a wonderful servant to England over the years. I have spoken with her and I fully respect her decision."
– but the sailors praise the new boats
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