The 30-year-old, who reached the quarter-finals of his home Grand Slam in 2015 but has struggled with a series of injuries in recent seasons, will only feature in the doubles at the event, which begins at Melbourne Park on January 18.
Kyrgios has fallen to number 670 in the world and would have needed a wildcard to play in the singles.
Tennis Australia (TA) said on Friday Stan Wawrinka had been given a wildcard in what will be the three-times Grand Slam champion's last appearance at the tournament before he retires at the end of the season.
"After some good conversations with TA I've made the call to focus on doubles for this year's AO," Australian Kyrgios wrote on social media.
"I'm fit and back on court, but five-setters are a different beast and I'm not quite ready to go the distance yet.
"This tournament means everything to me, but I'd rather give my spot to someone who's ready to make their moment count.
"It's all building blocks and I'll be back next year and pumped to compete. See you out there."
Kyrgios has undergone wrist reconstruction and had two knee surgeries since losing in the 2022 Wimbledon final to Novak Djokovic.
He lost in straight sets in the opening round of the Brisbane Open by Aleksander Kovacevic on Tuesday. Kyrgios won the men's doubles at the Australian Open in 2022 when he partnered compatriot Thanasi Kokkinakis to victory.
Wawrinka, who announced last month he would hang up his racket at the end of 2026, won the first of his three major titles at Melbourne Park and the 40-year-old was delighted to receive the wildcard.
"Winning the Australian Open in 2014, my first Grand Slam title, is an absolute career highlight for me, so I'm incredibly grateful to receive this wildcard," he added.
"To have the chance to play the Australian Open at the beginning of my final year on tour means the world to me."
Australians Jordan Thompson and Chris O'Connell also received wildcards.
