A statement issued by the region said the player had failed to recover from a head injury he suffered during the Premiership Sevens in August 2015.
The 25-year-old started his career with Blackwood and played sevens for Wales.
"I am devastated that I have been forced to retire from rugby through injury, but I know that it is the right decision," said Pewtner.
In May 2015, another Dragons player Ashley Smith had to retire at the age of 28 following a "series of concussive events".
And in September former Wales back-row Jonathan Thomas retired after being diagnosed with epilepsy linked to head traumas suffered while playing.
Dragons director of rugby Lyn Jones added: "It saddens us all to hear that Matthew has been forced to retire.
"We are all grateful for Matthew's fantastic contribution to the team throughout the years he has been with the region. We wish him all the best for the future."
In addition to playing seven for Wales, Pewtner was capped at under-20 level in 2009-10.
He said he would be studying for a teaching qualification.

William Johnston, of Walsham-le-Willows, Suffolk, admitted dumping the rubbish, described as building material and household waste, last April.
Suffolk Police said it was a "potential danger to motorists and other members of the public".
The 44-year-old admitted the whole episode was "hugely embarrassing" and "regrettable" as he left court.
He dumped the rubbish, described as building material and household waste, at the side of Finningham Road on 9 April last year.
Updates on this story and others from Suffolk
Police officers and the Environment Agency removed the waste, which they believe was unloaded using a tractor and trailer.
Johnston was fined Â£1000 plus costs of Â£1600 after pleading guilty to fly-tipping at Bury St Edmunds Magistrates Court.
In a statement, he said the rubbish had been unlawfully dumped on his own land before he moved it, and he later paid Â£4,000 for it to be cleared up from the side of the road.
Jonathan Reed, prosecuting on behalf of Mid Suffolk District Council said he was pleased the court had recognised the "severity of the offences as well as the dangers to users of the highway."

The 21-year-old is eligible to face Macclesfield on Saturday.
Former Port Vale player Jefford has made 27 appearances for Welling this season.
"Ben is a good young player that we potentially feel is a league player," Rovers assistant boss Jamie Day told BBC Wiltshire. "He has gained some good experience."
Newport Gwent Dragons wing Matthew Pewtner has been forced to retire from injury on medical advice.
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A farmer has been fined after dumping 40 tonnes of industrial waste outside a village.
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National League side Forest Green Rovers have signed defender Ben Jefford on an 18-month contract from Welling.