The 39-year-old Swiss has been out of action since February but recently resumed training and was on the entry list for year's opening Grand Slam, which will make a delayed start on Feb. 8.
Federer, a huge favorite with the Melbourne crowds, hasn't missed the Australian Open since his debut in 2000, winning the trophy six times.
"In the end, Roger ran out of time to get himself ready for the rigors of a Grand Slam and he's very disappointed he won't be coming to Melbourne in 2021," said tournament chief Craig Tiley.
"We wish him all the best as he prepares for his comeback later in the year and look forward to seeing him in Melbourne in 2022," he said.
Federer sat out most of the coronavirus-disrupted 2020 season after losing to Novak Djokovic in the Melbourne semis in January, his last competitive match.
He underwent keyhole surgery on his right knee in February, before needing a follow-up operation and calling off his season to recover.
The Swiss could only watch as Rafael Nadal matched his all-time men's record of 20 Grand Slam singles titles with a 13th victory at the French Open.
Federer will now concentrate on getting himself ready for the rest of the 2021 season, which includes the Tokyo Olympics and the chance of his first singles gold medal.
"He has made strong progress in the last couple of months with his knee and his fitness," his agent Tony Godsick said in a statement.
"I will start discussions this coming week for tournaments that begin in late February and then start to build a schedule for the rest of the year," Godsick added.
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