The former world number one has not played since the Open Championship in July, when he missed the cut in what could prove to be his final Open at St Andrews.
Woods, who hosts the long-running event, was set to return to action when the PGA Tour event begins at the Bahamas' Albany Golf Club on Thursday, but said the issue had rendered his participation impossible.
He tweeted: "In preparation and practice for this week's Hero World Challenge, I've developed plantar fasciitis in my right foot, which is making it difficult to walk.
"After consulting with my doctors and trainers, I have decided to withdraw this week and focus on my hosting duties. My plan is still to compete in The Match and the PNC Championship."
Woods is a five-time Hero World Challenge champion. This year's edition of the event, staged at Albany since 2015, carries a three-and-a-half-million US dollar prize pot.
Woods will be replaced in the field by 29th-ranked Austrian Sepp Straka.
He faces a quick recovery ahead of his next challenge, The Match, where he will partner Rory McIlroy against Jordan Spieth and Justin Thomas on December 10.