The Wall Street investment bank had faced a devastating drop in the value of its shares, following market concerns about its liquidity.
Yesterday, first Barclays and then Bank of America walked away from the opportunity to buy the bank, the US government already having indicated that it would not provide credit guarantees.
This stands in contrast to the Treasury and the Federal Reserve's actions towards Bear Stearns, which collapsed in March on similar liquidity worries.
Lehman's intention to file for Chapter 11 bankruptcy protection was announced in a statement from the bank.
News also came yesterday of a deal which would see fellow Wall Street stalwart Merrill Lynch merge with Bank of America.
Merrill is also facing credit crunch-related asset writedowns and credit losses.
Speaking to the New York Times Peter G. Peterson, co-founder of the private equity firm the Blackstone Group, commented: "My goodness. Iâve been in the business 35 years, and these are the most extraordinary events Iâve ever seen."