The big-serving Isner, who was seeded 12 at the first Grand Slam of the season, injured his right knee during the Hopman Cup in Perth last week and was forced to withdraw from the event.
He had further problems during his straight-sets loss to fellow American Ryan Harrison in his first match at the Sydney International on Wednesday.
Australian Open organisers said Isner had bone bruising in his knee.
“I am extremely disappointed to announce that I have to withdraw from the Australian Open,” Isner said in a statement yesterday. Isner will be replaced in the Australian Open main draw by a lucky loser from the last round of qualifying.