The Russian, runner-up in Melbourne last year, was due to play Germany's Rainer Schuettler in the third round on Saturday but pulled out on medical advice.
"My wrist is bothering me so I decided not to play," Safin told a news conference.
"The doctor told me I should not play. It could make it worse. It was not worth it."
The world number three also pulled out of last week's Sydney International with a shoulder injury and needed painkillers just to get him through his first two matches at the Australian Open.
Safin said he first noticed a problem with his left wrist when he fell during his first-round win over Dutchman Raemon Sluiter in Melbourne and it suddenly got worse after his second match against Albert Montanes of Spain.
The 22-year-old said his doctor diagnosed the problem as a cut ligament which would require two to three weeks rest.
"I'm disappointed but what can I do?" he said.
"In the first match I fell down and then I hit a backhand a little too late and I felt some pain.
"They gave me an injection before my second match but (by) that night I couldn't move it."
Safin stunned Pete Sampras in the final of the 2000 U.S. Open and briefly held the world number one ranking later that year, but he has not won another grand slam title since.
He reached the final of last year's Australian Open only to suffer a surprise defeat by Swede Thomas Johansson. He also made the semi-finals of the French Open but was knocked out in the second round at Wimbledon and the U.S. Open.
Safin ended the year on a high when he helped Russia win the Davis Cup for the first time in December.
He has been campaigning for changes to the tennis calendar, saying the break between seasons was too short and was contributing to injuries.
A number of top players, including Johannson, pulled out of the Australian Open before it began with niggling injuries left over from last year.
"Everyone's trying to play too many tournaments and because the level of tennis is so high the bodies of the players cannot take it," Safin said.
"Every time you play you need two or three weeks off because the body is getting tired really fast.
"We don't have a rest at all now, so it's difficult."
