The 37-year-old American world number 11 had been due to face sister Venus in an eagerly-awaited second-round clash in Rome. Venus received a walkover into the third round.
Serena, a 23-times Grand Slam singles champion, has struggled with injuries since reaching the quarter-finals of this year's Australian Open, although she had breezed through her opening match against Swede Rebecca Peterson.
"I must withdraw from the Italian Open due to pain in my left knee," the four-times Rome champion said. "I will miss the fans and competition at one of my favourite tournaments.
"I'll be concentrating on rehab and look forward to seeing you all at the French Open and next year in Rome."
Williams' knee injury also forced her to pull out of her last tournament in Miami in March.
The French Open will begin on May 26.
(Reporting by Martyn Herman, editing by Ed Osmond and Toby Davis)
