British Cycling confirmed the change on Tuesday, saying the 27-year-old Kennaugh had volunteered to step down after struggling to recover from the injury.
Cummings, 35, had been first reserve but created a clamour for his inclusion after a brilliant solo victory on the seventh stage of the Tour de France last week.
British Cycling programme's director Andy Harrison said: "I am disappointed for Pete but I respect his decision and I'm sure he can bounce back and finish his season strongly.
"Clearly Steve is in excellent form and I'm certain he will do Team GB proud."
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Chris Froome will lead the team along with Team Sky colleagues Geraint Thomas and Ian Stannard.
Adam Yates, currently enjoying an impressive Tour de France where, is also in the team.
Cummings, who rides for the Dimension Data team, had been controversially left out of the initial roster which apart from Yates consisted of all Team Sky riders.
He had said there was a conflict of interest for coach Rod Ellingworth because of his positions at Team Sky.
"As always when selecting a team for a road race, the ideal situation is to leave the decision as late as possible as it's difficult to predict riders' form and health so far out," Ellingworth said in a statement.
"Since the selection panel made the original decision, there's been 38 days of world tour racing during which time we've had some excellent results from the British Cycling squad, for example we've had British riders wear the yellow, green and white jerseys at the Tour de France."
The Olympics road race will be held on Aug 6.
(Reporting by Julien Pretot; Editing by Martyn Herman)
