The seven-time singles grand-slam winner was originally awarded a wildcard but picked up an injury at the ASB Classic in Auckland.
"Venus Williams has withdrawn from the Australian Open due to an injury sustained at the ASB Classic in New Zealand," the Australian Open said in a tweet.
The 42-year-old's wildcard place has now been awarded to Australian world number 173 Kim Birrell.
Williams was hoping to make only her second Grand Slam singles appearance in the last six tournaments after struggling with injury over the past few years.
She missed the 2021 US Open as well as the first three Grand Slams of the 2022 season before making an appearance at last year's US Open at Flushing Meadows after being handed a wildcard. However, she suffered a first-round defeat at the hands of Alison van Uytvanck.
There are also injury clouds over world No 1 Iga Swiatek and former US Open champion Emma Raducanu ahead of the hard-court major.
Three-time Grand Slam winner Swiatek pulled out of the Adelaide International 2 as she is managing a shoulder injury following a busy schedule at the United Cup.
The 21-year-old played six rubbers - including two mixed doubles matches - in the season-opening tournament with her last encounter a two-set loss to Jessica Pegula during Poland's 5-0 semi-final defeat at the hands of the United States.
Raducanu, meanwhile, is struggling with an ankle problem she picked up during the ASB Classic, but her team are hoping it is just a minor strain. The 2022 US Open winner has already made her way to Melbourne for the first major of 2023.
"It's difficult to take," Raducanu said on stuff.co.nz. "I've put a lot of physical work in the last few months and I've been feeling good and optimistic.
"So to be stopped by a freak injury, rolling an ankle, is pretty disappointing, in the first week as well. I thought I was playing some pretty decent tennis.
"The courts are incredibly slick, like very slippery, so to be honest it's not a surprise that this happened to someone."