The company is blaming financial losses and high operating costs.
The announcement came Friday morning. Workers were told to go home, and that the plant is shutting down for good.
Employee Brian Robinson told Action News he never expected to get a pink slip. He worked there for six years, as the plant changed names and ownership many times.
"It is hard. We come here every day, work hard, counting on having a job, a steady income. That's changed today," he said.
For decades the plant has employed thousands of people. However, as workers showed up for the morning shift, state police were surrounding the property.
Workers were told to clean out their lockers.
It was disappointing news to officials in Delaware City, who can only hope another company takes over the refinery. They said the Diamond State can't take many more hard hits from company closings.
"It keeps coming. They've got to stop the bleeding somewhere. We all need oil, we all need gas... I have no idea how this is going to play out," said City Manager Dan Tjaden.
Valero said it has started negotiations with the refinery's unions. Workers will be paid for the next 60 days.
"The decision to permanently close the Delaware City refinery was a very difficult one," said Valero Chairman and CEO Bill Klesse. "We have spent the last year diligently trying to avoid this situation, and I have worked closely with Gov. Markell in an effort to find a different outcome."
The refinery lost about $1 million every day this year, said Valero spokesman Bill Day.
It is the largest refinery in the U.S. to close this year.
Refineries in the Northeast are particularly vulnerable because many are older, operate less efficiently and must compete with gasoline imported from Europe.
Demand for fuel has been falling for some time and the recession has made things worse, squeezing profit margins for refiners everywhere.
Refiners are pulling capacity offline and are now operating at levels more consistent with the aftermath of a hurricane in the Gulf of Mexico.
Valero, based in San Antonio, said in September that it would idle two units in Delaware City, cutting about 150 jobs. Last month, the company said it would cut another 100 jobs at its Paulsboro, N.J. refinery by the end of the year.
The Paulsboro announcement came just days after Sunoco Inc. said it would indefinitely idle its Eagle Point facility, which employs about 400 workers in New Jersey.
In June Valero shut its refinery in Aruba, which had a capacity of about 275,000 barrels a day.
The Delaware City refinery had a capacity of 210,00 barrels a day.
Valero expects the shutdown to lead to a pretax charge of between $1.7 billion and $1.8 billion in the fourth quarter, but said it will reduce pretax operating expenses by about $450 million in 2010.
Company shares rose 11 cents to $16.47 Friday.
Associated Press reporter Randall Chase contributed to this report