Kidd, hired as Nets coach June 12, formerly starred as a point guard with the team.
"This is a very humbling honor and one that I will always cherish," Kidd said in a statement. "There can be no greater recognition of an athlete's time with any team than to have his number retired, and this gesture by the Nets organization validates a very significant portion of my career that was spent as a player with this franchise."
Kidd played for the New Jersey Nets for six-plus seasons (2001-08), averaging 14.6 points, 9.1 assists and 7.2 rebounds. He led the team to NBA Finals appearances in 2002 and 2003.
"My warmest congratulations to Jason as we commemorate his outstanding career as an NBA player and his unparalleled contribution to the Nets franchise," team owner Mikhail Prokhorov said in a statement. "As one chapter closes, another will soon be written, and I know that we are all looking forward to Jason's continued successes."
Less than two weeks after he announced his retirement following a 19-year career in the NBA, the Nets named Kidd as their coach.
Kidd also will be buying a portion of Jay-Z's minority share of the team, a source confirmed to ESPN's Darren Rovell.
"This honor is richly deserved," Nets general manager Billy King said. "Jason is firmly established in the Nets' record books as the greatest player in the team's NBA history, and the retirement of his No. 5 is a fitting conclusion to his legacy as a Nets player."
Kidd will become the sixth player in franchise history to have his number raised to the rafters, joining Drazen Petrovic (No. 3), John Williamson (No. 23), Bill Melchionni (No. 25), Julius Erving (No. 32) and Charles "Buck" Williams (No. 52).
Kidd holds the franchise's NBA records for assists (4,620), steals (950), 3-point field goals made (813) and triple-doubles (61).
During his tenure with the Nets, Kidd was selected to five All-Star teams and captained the team to six consecutive playoff appearances -- including four Atlantic Division titles.
Mike Mazzeo is a regular contributor to ESPNNewYork.com.