The 29-year-old Vail, Colo., native announced her decision on her Facebook page.
"I am devastated to announce that I will not be able to compete in Sochi," Vonn said. "I did everything I possibly could to somehow get strong enough to overcome having no ACL but the reality has sunk in that my knee is just too unstable to compete at this level.
"I'm having surgery soon so that I can be ready for the World Championships at home in Vail next February."
The dominant alpine skier of this era, Vonn on Nov. 19 re-injured ligaments in her right knee that were originally torn in a crash at the world championships in February of last year.
Vonn underwent surgery after that crash and undertook a strenuous rehab program to get back on the World Cup circuit for the 2013-14 season.
She competed at Lake Louise, Alta., finishing as high as fifth in a trio of races in early December.
But she clutched her knee after a turn at the Val d'Isere downhill on Dec. 21, skiing off course.
Vonn won gold in the downhill and bronze in the super-G at the Vancouver Games.
She has racked up 59 career World Cup victories and four overall season titles.