Castle, who joined the Dragons from French big spenders Toulon in 2009, has been advised to call time on his career rather than risk further damage.
The New Zealander insists he has no intentions to leave Wales straight away, however, and is convinced the Dragons have a bright future ahead of them.
"I'm very sad to have finished my rugby career in this fashion. I have thoroughly enjoyed being part of the Dragons," said Castle, who has played 34 times for the Rodney Parade outfit.
"My team-mates and the coaching staff here are a fantastic group of people and I will really miss being part of the setup at Rodney Parade.
"There are some really talented players here and I know that they have a great future ahead of them.
"I'd like to thank the supporters at Rodney Parade who are really special and wish everybody the best of luck for the future.
"I'm not going straight back to New Zealand and I will certainly be at the Dragons matches supporting the boys."
The news is a big blow for the Dragons who lost former skipper and fellow front rower Tom Willis to a career-ending injury earlier this month.
Waleshooker Lloyd Burns is also currently sidelined with a neck injury and second row Luke Charteris is out of action for the remainder of the season with wrist damage.
But rather than bring in expensive imports to boost their front-five resources, the region have continued their development philosophy by turning to youth, especially in Castle's prop position.
Nathan Buck and Aaron Coundley are both just 22, Phil Price is 23 and Hugh Gustafson and Dan Way are only 24 yet all five are challenging Nigel Hall and Nathan Williams for regular game time in the RaboDirect PRO12.