The 23-time major victor played in an exhibition match in Abu Dhabi last week, losing to Jelena Ostapenko.
In a statement put out by Australian Open organizers, Williams said: "After competing in Abu Dhabi I realized that although I am super close, I'm not where I personally want to be". "I want to do far better than that and to do so, I will need a little more time".
The American refused to commit to playing at the first Grand Slam of the year at the Mubadala Tennis Exhibition in Dubai last week, though tournament director Craig Tiley reportedly remains confident she will be in action.
"We all wish her the very best and I look forward to seeing her back on court this year, and can't wait to welcome her back to the Australian Open in 2019". "I appreciate the support and understanding of my fans and everyone at the Australian Open", she added.
The 12-time Grand Slam victor will also play the Tie Break Tens at Margaret Court Arena at Melbourne Park on January 10 in the evening, joining Rafael Nadal, Stan Wawrinka, Nick Kyrgios and Lleyton Hewitt in the field.
On Thursday, men's world number 22 Kei Nishikori withdrew because of a wrist injury.
She'll always be a champion!
There are also doubts over the fitness of Spanish world number one Rafael Nadal and Switzerland's Stan Wawrinka, who won the title in 2014.
The upcoming Australian Open women's draw won't include the defending champion.
"It was never going to be good enough for her to just compete".