"Brad has not recovered enough from the back injury he sustained in Zimbabwe (last month) to resume full training and has therefore been ruled out of the forthcoming series against Sri Lanka," Australia's team doctor Trefor James said in a statement.
A disappointed Williams said: "I was confident I'd be available for selection and had started some light training but it doesn't look like I'll be in a position to increase my intensity levels for another couple of weeks.
"I'll continue to work on my rehabilitation with the guys here in Perth and I'm sure I'll be ready to go in time for the ICC Champions Trophy (in September)," the 29-year-old added.
Australia have yet to name a replacement for Williams, who has four Test caps, in their 13-man squad to play Sri Lanka.
The Western Australian's withdrawal places further pressure on leading paceman Glenn McGrath to find form in his first Test series for 12 months after recovering from a serious ankle injury.
Leg spinner Shane Warne is also in doubt for the series after suffering a broken hand last week while playing for his English county side Hampshire.
Australia will host Sri Lanka for Test matches in Darwin from July 1 to 5 and Cairns from July 9 to 13.
