The US-listed company on Tuesday said operating costs, current bauxite grades and current market conditions were behind the decision.
Production will be phased out at the Kwinana refinery, with about 800 employees and 250 contractors likely to be affected.
The Western Australian government expressed its disappointment in the decision and said it would support those affected.
Premier Roger Cook said it would be a difficult day for Alcoa's workers.
"This is a very disappointing outcome, and Alcoa needs to do everything it can to support its workforce through this transition," he said in a statement.
"We will continue to work with Alcoa to ensure its other operations in Western Australia - including its Pinjarra and Wagerup refineries - support local jobs into the future."
Alcoa's Executive Vice President and Chief Operations Officer Matt Reed said it was aware the decision to close the facility would have an impact on the community.
"We deeply appreciate the commitment and support of our many loyal employees, contractors, and suppliers at our Kwinana refinery, which has made a major contribution to Western Australia's economic development over the last 60 years of continual operation," he said.
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