In a statement released by the White House, President Obama said he met with the four-star general and accepted his request to retire from the military "so that he can address health issues within his family."
"I told General Allen that he has my deep, personal appreciation for his extraordinary service over the last 19 months in Afghanistan, as well as his decades of service in the U.S. Marine Corps," Obama said in the statement. "General Allen presided over the significant growth in the size and capability of Afghan National Security Forces, the further degradation of al-Qaida and their extremist allies, and the ongoing transition to Afghan security responsibility across the country.
"He worked tirelessly to strengthen our coalition through his leadership of the International Security Assistance Force, and to improve our relations with the Afghan government.
"Above all, he cares deeply for the men and women in uniform who serve our nation -- as well as their families -- and I am grateful for the sacrifices made by his family in supporting him during his service."
Obama went on to call Allen, 59, "one of America's finest military leaders, a true patriot and a man I have come to respect greatly." He concluded by wishing Allen and his family "the very best as they begin this new chapter, and we will carry forward the extraordinary work that General Allen led in Afghanistan."
Allen headed up the ISAF and U.S. forces in Afghanistan from July 2011 until this month.
USA Today reported a source close to the general said his wife has been ill recently.
"For more than 35 years, my beloved Kathy has devotedly stood beside me and enabled me to serve my country," Allen said in a statement released Tuesday. "It is profoundly sobering to consider how much of that time I have spent away from her and our two precious daughters. It is now my turn to stand beside them, to be there for them when they need me most."
By retiring, Allen passes up the chance to become supreme allied commander in Europe. His nomination, which depended upon Senate confirmation, had been on hold pending an investigation of allegations he had improper email communications with a Florida woman linked to the sex scandal that felled CIA Director David Petraeus.
Allen was exonerated last month and the White House had said it would proceed with his nomination.