The Genesis star says he can no longer even hold his drum sticks because sitting at a kit is too painful.
Phil, 58, said: "I've got a condition that means I can't play any more. After playing drums for 50 years, I've had to stop.
"Obviously I'm very sad about it. My vertebrae has been crushing my spinal cord because of the position I drum in."
"It comes from years of playing. I can't even hold the sticks properly without it being painful."
"I even used to tape the sticks to my hands to get through. But don't worry, I can still sing."
The news will be heartbreaking for Phil's millions of fans worldwide.
A friend said: "He is devastated as drumming is everything to him. It's how he made his name and it set him on the road to superstardom.
"But drumming has been getting more and more painful and he decided enough was enough and called it a day. He has to put his health first."
Phil, who has sold more than 150 millions albums, was speaking at a garden party on Tuesday in aid of the Prince's Trust.
He is a celebrity ambassador for the charity and Prince Charles and Camilla invited Phil to the reception at their Highgrove home near Tetbury, Glos.
Phil first found stardom as the drummer in 70s prog rock favourites Genesis after answering an advert in the music paper Melody Maker He initially only did backing vocals but took over the microphone when lead singer Peter Gabriel left in 1975.
A Trick Of The Tail, the group's first album featuring Collins on lead vocals, entered the charts at No.3.
He subsequently launched a solo career as well and his first album Face Value went to No.1.
It was followed by a string of hit singles such as In The Air Tonight and You Can't Hurry Love.
Phil, who was a child actor, also starred in the 1988 movie Buster.
In 1996 he announced was leaving Genesis after 26 years.
He recently won a new generation of fans with a Cadbury's advert featuring a gorilla drumming along to In The Air Tonight.
It became an instant YouTube classic generating millions of hits and a chart re-release reached No.14.
© Mirror.co.uk, by Tom Bryant