The 33-year-old midfielder, who made 73 appearances for the Owls between 2006 and 2010, confirmed the Europa Conference League fixtures with current club Newtown AFC of the Welsh Premier League will be his last.
He tweeted: “Playing the game I love has given me so much and it will be nice to go out on a high.
"Thanks to all the coaches and managers that helped me achieve my dream, the teammates and opponents that pushed me every day and the supporters of those clubs I had the honour of representing.”
McAllister joined Sheffield Wednesday’s academy in 2003 after playing for his hometown club Bolton Wanderers and made his first-team debut under Paul Sturrock in 2006 – the same year he was named the club’s Young Player of the Year.
His most productive season with the Owls came in the 2008/09 campaign when he made 40 appearances in the Championship.
After leaving Hillsborough, McAllister had spells with Shrewsbury Town, Scunthorpe United, Port Vale and Grimsby Town in the Football League.
He joined Newtown in 2019 and currently combines playing with coaching at Shrewsbury Town’s academy.
He said he “will be moving to the other side of the white line” after retirement.
Newtown have been drawn against Irish side Dundalk in the first qualifying round of UEFA's newest football club competition, which will feature 184 teams over the course of the season.
There are three qualifying rounds and a play-off round before the group stage begins.