Tennis Australia announced that the world number six had pulled out because of a back problem.
Capriati won the Australian Open in 2001 and 2002 and would have been among the favourites in Melbourne this year.
The American is the latest in a series of top players to withdraw from the first Grand Slam of the year.
Serena Williams announced last week that she would not be defending her title. Four-times winner Monica Seles and 1995 champion Mary Pierce have also pulled out.
There are also concerns about world number two Kim Clijsters after she injured her ankle in the Hopman Cup last week while Jelena Dokic is unlikely to play after pulling out of two warm-up events citing "personal reasons".
