The veteran opener was caught behind on 14 from Matt Kuhnemann's bowling in the hosts' second innings on day three of the second Test in Galle.
Karunaratne immediately reviewed the wicket, but began to walk as ultra-edge showed the slightest of spikes when the ball passed his bat.
In his 100th Test, the 36-year-old shook the hand of veterans Nathan Lyon and Steve Smith before sharing a long embrace with batting partner and long-time teammate Dinesh Chandimal in the middle.
The Australian players formed a line near the stumps on the northern end of the pitch and applauded Karunaratne as he walked from the ground where he played his first Test back in 2012.
Karunaratne removed his helmet and waved his bat to a crowd on its feet.
On the boundary rope, he hugged Angelo Mathews - the next batter to the crease and another long-term teammate in the Sri Lankan batting order.
With that, Karunaratne disappeared into the pavilion for the last time as a Test batter.
He had formally announced his retirement in an emotional press conference ahead of the final Test match against Australia.
The left-hander had pointed to his recent record as his primary reason for hanging up the boots.
Karunaratne has averaged only 27 with the bat since the beginning of last year and had gone since April 2023 without a Test century.
In the Australia series, he produced knocks of 7, 0, 36 and 14.
But Karunaratne enters retirement as one of Sri Lanka's most prolific Test players, only the seventh man to reach 100 red-ball matches for the country.
No Sri Lankan has played more innings as a Test opener than Karunaratne, who memorably led Sri Lanka to their first series win in South Africa in 2019 among 30 matches as captain.
For comparison, no Indian team has ever matched that feat.
A Test high score of 244 against Bangladesh in 2021, and 196 in Sri Lanka's first-ever day-night Test against Pakistan in 2017 were two other highlights.
Karunaratne will begin his cricketing retirement in Melbourne, where he hopes to complete coaching qualifications.
"Hopefully I can come back again to serve Sri Lankan cricket," he said earlier this week.
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