Williams was pregnant when she won at Melbourne Park past year, her Open-era record 23rd Grand Slam singles title.
She gave birth in September and played in an exhibition tournament last week.
The decision did not come easily or quickly for Williams, who is only one Grand Slam title away from achieving an all-time record in wins.
She'll always be a champion!
Tournament director Craig Tiley called Williams's efforts to try and be ready for a title defence at the Australian Open "Herculean" and said she transcended the sport. "I appreciate the support and understanding of my fans and everyone at the Australian Open", she added. In Abu Dhabi, Williams was clearly sluggish and had problems with her serve.
The 2018 Australian Open comes just four months after the 36-year-old gave birth to a daughter, Alexis Olympia, with her husband, Reddit co-founder Alexis Ohanian.
She had won the tournament seven times, with her first victory coming in 2003.
"It was never going to be good enough for her to just compete".
"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 11th hour to make her final decision", Tiley said.
Novak Djokovic is finally set to return to action next week after six months out with an elbow injury and will then decide whether to take part in the Jan 15-28 Australian Open. Her confidence was reportedly shaken after losing to Jelena Ostapenko in her comeback match at the French Open. Murray has returned home after failing to recover from a hip injury sustained a year ago, while Nishikori has been on the sidelines since August due to a torn tendon in his right wrist.
Other star players, including top-ranked Rafael Nadal, six-time champion Novak Djokovic and 2014 victor Stan Wawrinka, also are dealing with injuries.