An independent medical panel has ruled Lynch should stop playing contact sport permanently.
The former Collingwood big man was added to the club's long-term injury list in May after he was subbed out of a game against Adelaide with concussion.
"Since entering the long-term injury list, Max has worked closely with our medical team to return to full cognitive baseline following his most recent concussion," Hawks football boss Rob McCartney said.
"This decision is to reduce any risk of future injuries that could change this situation.
"What I have been most impressed by is the resilience he has shown with the challenges that have been put in front of him.
"He is a much-loved member of the Hawthorn family, a great teammate and even better person.
"We will continue to support Max in any way we can as he embarks on the next phase of his life and career off the field."
Lynch, who played 11 AFL games for Collingwood and Hawthorn after debuting in 2020, has taken on a role as a development coach for the Hawks' AFLW team as he transitions into life after football.
He addressed his Hawthorn teammates on Tuesday.
"This definitely isn't how I wanted my career to come to an end, but I accept the decision and know it is the right one for my future," Lynch said.
"I want to thank the club for its support throughout the entire process, to have all of my teammates and coaches behind me has helped me immensely through this challenging period of my life."
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