The 34-year-old, the second highest try scorer in Wallaby history, will not be taking up the third year option on his contract and is expected to return to Australia with his family.
Director of Rugby Mike Ruddock praised the outstanding contribution of Latham at Warriors when revealing the player's departure following intense recent speculation over his future.
"Chris Latham has decided not to take up the third year option on his contract at Worcester Warriors due to the fact that his family would like to return to Australia. We wish them every success and happiness back in their homeland," he said.
"We would like to place on record our thanks to Chris for his magnificent service to the Warriors during the last two seasons.
"He has always had a fantastic relationship with the supporters and that has been highlighted by the fact that he made a special request to us that he let the fans know first, via our official website, about the his future before this statement.
"Chris has been inspirational and his work ethic has been truly remarkable. Having had the opportunity to work with him first hand, I can see why he was by far the best full back in the world for so many years.
"His dedication to the job and his commitment on the field has been inspirational for all at the club to witness. We wish Chris every happiness in his new challenge.
"We have traditionally recruited very strongly at full back, with the likes of Thinus Delport and Chris Latham," added Ruddock.
"We are confident that our new signing will be as inspirational as previous stars and we will shortly announce our new full back."