Lindner, 46, served as finance minister in Olaf Scholz's unwieldy three-way coalition government but was often at odds with the Social Democrat chancellor.
Matters came to a head in November when Scholz fired him after a bitter falling out over government spending.
All but one of Lindner's FDP party colleagues resigned from the cabinet, paving the way for Sunday's early general election.
Early results showed the FDP heading for a disastrous result of around 4.4 percent - seven percent down on the last election in 2021.
With the party's fate seemingly sealed, Lindner announced in a post on social media platform X that he would "retire from active politics".
"I have only one feeling: gratitude for 25 intense, challenging years full of productive work and debate."
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Sunday's electoral collapse caps a turbulent political career for Lindner, who brought the party back from the wilderness and into government.
Lindner took the party reins in 2014 after it crashed out of the Bundestag. Under his leadership, the FDP doubled its vote share in 2017 and retook seats in parliament.
After the election, the liberal leader showed his early flair for the dramatic, walking out of talks with the Greens and the former chancellor Angela Merkel's conservatives.
"Better not to govern than to govern badly," he declared to waiting press.
Lindner got a second chance after the 2021 elections, securing his long-coveted role as finance minister in Scholz's government.
Ultimately, he could not bridge his ideological differences with his coalition partners from the Social Democrats and Greens.
Lindner, a die-hard fiscal hawk, baulked at Scholz's proposals to suspend Germany's constitutionally enshrined debt brake when it came back into force after the coronavirus pandemic -- leading to his exit from government.
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