Games organisers announced on Thursday that Tokyo venues for the pandemic-delayed event will not host spectators due to the city's coronavirus state of emergency.
The new state of emergency for the capital will run from July 12 to August 22 -- covering the 16 days of the embattled Games in its entirety.
In a statement posted on Twitter, Kyrgios wrote: "It's a decision I didn't make lightly. It's been my dream to represent Australia at the Olympics and I know I may never get that opportunity again.
"But I also know myself. The thought of playing in front of empty stadiums just doesn't sit right with me. It never has."
There are a total of 42 venues listed on the Tokyo 2020 website. Twenty-five are in Tokyo and the rest are in seven other prefectures.
However, three prefectures near Tokyo -- Chiba, Kanagawa and Saitama -- will not have spectators at Olympic competition venues, according to Tokyo 2020 President Seiko Hashimoto.
Miyagi, Fukushima, and Shizuoka prefectures have decided that venues can be filled to 50% of capacity with a maximum of 10,000 spectators, added Hashimoto.
'I need to get my body right'
Kyrgios was originally named in the 11-member Australian Olympics tennis team, comprising six men and five women, at the end of June.
The 26-year-old, though, had already cast doubts about his participation at the Games after he retired with an abdominal injury during his Wimbledon third-round match with Felix Auger-Aliassime on Saturday.
"I wouldn't want to take the opportunity away from a healthy Aussie athlete ready to represent the country," Krygios added.
"I will also take all the time I need to get my body right."