The 36-year-old suffered the injury during Wimbledon and subsequently pulled out of his semi-final clash against Nick Kyrgios as the grand slam.
Nadal's hasn't recovered sufficiently in order to compete in Canada next week, and will instead take extra time to recover ahead of the US Open later this month.
Nadal said in a statement on the tournament's official website: "I have been practising for a while now without serving and started with serves four days ago.
"Everything has been going well. However yesterday, after my normal practice, I felt a slight bother on my abdominal and today it was still there.
"After speaking with my doctor, we prefer to take things in a conservative way and give (it) a few more days before starting to compete. I would like to thank Eugene (Lapierre), the tournament director, and all his team for understanding and supporting me and this decision.
"I am very sad not to finally travel to Montreal. It's a tournament that I have won five times and I love to play there. I seriously hope I can come back there to play in front of the amazing crowds up there."
Meanwhile, Andy Murray will play in the tournament after receiving a wild card.
The three-time champion is playing the event for the first time since winning in 2015.