The 12-time Grand Slam tournament winner, who hasn't played since a right elbow problem forced him to quit Wimbledon in the quarterfinals in July, has already had to shelve his comeback plans, cancelling scheduled appearances at an exhibition in Abu Dhabi and the season-opening Qatar Open.
Djokovic is due to play at the Kooyong Classic and the Tie Break Tens evening exhibition at Melbourne Park in the week leading up to the Australian Open.
"After competing in Abu Dhabi I realized that although I am super close, I'm not where I personally want to be", Williams said in a statement.
The 36-year-old, who won last year's trophy while eight months pregnant, has played just one match since the birth of daughter Alexis Olympia.
"My coach and team always said, 'Only go to tournaments when you are prepared to go all the way.' I can compete - but I don't want to just compete, I want to do far better than that and to do so, I will need a little more time".
GETTYSerena Williams had been hoping to defend her Australian Open crown
Andy Murray is a major doubt after a late withdrawal from the Brisbane International due to his ongoing hip injury.
Australian Open tournament director Craig Tiley said Williams waited as long as she could before letting officials know she wouldn't be able to compete.
And the 31-year-old shared a picture of himself today at the Palma de Mallorca airport, preparing to fly out to Australia.
"It was never going to be good enough for her to just compete, she wants to give herself the best chance to win", Tiley said.
World number 22 Kei Nishikori, a three-time quarter-finalist in Melbourne, will definitely miss the Australian Open however with a wrist injury.