Staff at the Camden-based company were told at the end of last week that the division, which produces puppets and animatronics for feature films, would close.
They have been on tenterhooks since the beginning of June when the company served a 30-day notice. However, no firm decision had been made at that point.
The company continued to cite the dollar's unfavourable exchange rate and "the absence of concrete tax incentives in the UK production market" as the reasons for the closure.
Henson said it will continue to use London as a production base and has not ruled out a return if there is an upturn in the UK film industry.
Peter Schube, president and chief operating officer, The Jim Henson Company said; "We are grateful to the UK film industry for its important place in our company's history and we are confident that it will remain a significant production centre for us."
The company said that its own film and television projects will not be affected and that the Creature Shop will continue to service third party clients through its Los Angeles and New York bases. It also aims to project manage freelance crews in London on a project-by-project basis.
As well as providing more conventional puppetry, The Creature Shop has worked on feature films such as Five Children and Itand has developed the Henson Digital Performance System (HDPS), a technology that enables puppeteers to move computer generated characters in real time. It featured in the production of Frances, a preschool project in partnership with HIT Entertainment.