Tampa Bay Lightning doctors said they couldn't clear him to play after examining his most recent CT scan and will re-evaluate his condition again in two to three weeks.
It's a big blow for the 23-year-old, who had been optimistic earlier this week that he might be able to play by as soon as Saturday.
"Today is obviously very disappointing for me," Stamkos said in a release. "I honestly believe that we did everything possible in order to have my injured leg ready in time for the Olympics, but I realize you can't force healing. I know, in the best interest of my long-term health, I cannot represent Canada in Sochi, as much as I would like to."
Stamkos will further address the media in person Thursday following the Lightning's morning skate at Tampa Bay Times Forum.
Lightning general manager Steve Yzerman, who is also Team Canada's executive director, said Stamkos "should not be participating in game action at any time in the near future."
"Although the doctor was very pleased to this point with the healing process, he explained that the callus surrounding the fracture site is not 100 per cent consolidated, and Steven will not be cleared to play in a game until that happens," said Yzerman. "It was a pretty clear-cut decision, no grey areas at all."
Sidney Crosby, the captain for Team Canada, was disappointed to hear that Stamkos would not be heading to Sochi.
"It's tough to see. I think we all figured if there's anyone that's going to find a way back, it would be him," Crosby said, after scoring a goal and adding an assist in Pittsburgh's 5-1 win at Buffalo Wednesday night. "That being said, it's probably more difficult for him than anyone else. You feel for him, but we obviously have to move forward."
Hockey Canada did not immediately announce a replacement for Stamkos, though Claude Giroux, Lightning teammate Marty St. Louis and James Neal figured to be the leading candidates.
Crosby declined to suggest who he might favour as a candidate to replace Stamkos.
"With different guys in the mix, I think it's a good problem to have," Crosby said. "But nonetheless, I don't think it's an easy decision at all."
NHL players are set to leave Sunday and arrive in Sochi on Monday. Canada's first game is Feb. 13.
Stamkos suffered the injury Nov. 11 and hasn't played since. He underwent surgery to have a titanium rod inserted into the tibia.
Stamkos has missed 39 regular-season games.
with files from The Associated Press