He 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 public service.
Bayh says it is 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 decision leaves Democrats at risk of losing the Senate seat in the November election after Bayh had raised $13 million for his campaign.