Dokic was to have played in the traditional warm-up event for the year's first grand slam, but the world number 15 notified the Florida-based women's WTA Tour she would not play, preferring instead to concentrate on training.
"I had a phone call from the tour office in Florida letting me know," Craig Watson, tournament director of the Sydney International, said in a statement.
"It is obviously very disappointing as we were looking forward to welcoming Jelena back to Australia for the first time since 2001," he said.
Dokic gave no firm indication of whether she intended to play in the Australian Open which begins in Melbourne on January 19.
"I'm really disappointed that I won't be able to compete in the International, but I really need to spend a little more time training in order to play my best tennis," Dokic said in the same statement released by the Sydney tournament.
"It's important to me to start the year strong and I think the fans in Australia deserve nothing less than every player's absolute best tennis," she said.
NOT PLAYING
Dokic's father Damir told The Sydney Morning Herald newspaper that he had spoken to his daughter "10 or 15 days ago" and she had told him she would not play in Australia.
"How could she go back?" Damir Dokic was quoted as saying earlier on Thursday.
"She called us and said she would not be going to Australia. We last spoke to her maybe a week ago," he told the paper from Serbia and Montenegro.
Dokic and her father had a very public falling out a year ago over her relationship with Brazilian racing car driver Enrique Bernoldi, Damir Dokic saying at the time that he never wanted to see her again.
Dokic, 20, has refused to play at the Australian Open since she was knocked out in the first round by former world number one Lindsay Davenport at Melbourne Park in 2001.
Damir Dokic claimed at the time the draw had been rigged against his daughter after she was drawn to play Davenport.
Dokic and family then left Australia, who she had represented at both the Sydney Olympics and in the Fed Cup, for Belgrade later that year.
She now trains with former French Open champion Arantxa Sanchez-Vicario in Barcelona.
