The 36-year-old was eight weeks pregnant last year when she triumphed for a seventh time at Melbourne Park to claim an Open-era record 23rd grand slam title and then took the rest of the year off before giving birth to a daughter.
She has played just once in public since, losing to French Open champion Jelena Ostapenko in Abu Dhabi last week, but was still hopeful of making a remarkable return at the Australian Open until she admitted defeat a week ahead of the event.
"My coach and team always said 'only go to tournaments when you are prepared to go all the way'. I can compete - but I don't want to just compete, I want to do far better than that and to do so, I will need a little more time," Williams said in a statement.
Williams had told Vogue magazine last August about her "outrageous plan" to defend her title but the short turnaround after giving birth has proven too much for even the greatest player of her generation.
Williams, whose grand slam tally is just one shy of the all-time record held by Australian Margaret Court, said she was disappointed to withdraw but looked forward to returning in the future.
"After competing in Abu Dhabi I realised that although I am super close, I'm not where I personally want to be," Williams added.
"With that being said, and even though I am disappointed about it, I've decided not to compete in the Australian Open this year."
Tournament director Craig Tiley called Williams' efforts to try and be ready for a title defence at the Australian Open "Herculean" and said she transcended the sport.
"It was never going to be good enough for her to just compete, she wants to give herself the best chance to win," Tiley said.
"I've been in constant contact with Serena and her team and know this is why she has pushed it and pushed it until the eleventh hour to make her final decision."
Williams is the latest big name to withdraw from the year's opening grand slam, which will be played from Jan. 15-28, with Britain's Andy Murray (hip) and Japan's Kei Nishikori (wrist) having already said they would not compete.
There is also uncertainty over whether former champions Novak Djokovic, Stan Wawrinka and Rafa Nadal, the latter of which arrived in Melbourne earlier on Friday, will be fit to take to the court.
(Reporting by Nick Mulvenney and Frank Pingue; Editing by John O'Brien)
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