Flight AC84 had been scheduled to depart from Toronto's Pearson International Airport at 6:10 p.m.
"We will continue to evaluate the situation going forward, and provide updates as needed," Air Canada spokeswoman Isabelle Arthur said in an email.
The announcement came shortly after the U.S. Federal Aviation Administration prohibited U.S. airlines from flying to Tel Aviv for 24 hours "due to the potentially hazardous situation created by the armed conflict in Israel and Gaza."
Later, the European Aviation Safety Agency issued an advisory to airlines saying it "strongly recommends" airlines avoid the airport. Several European airlines cancelled their flights, some of them for the next 36 hours.
Israeli police confirmed that a rocket from Gaza landed in an area near Tel Aviv's Ben Gurion Airport on Tuesday. A police spokesman said the rocket heavily damaged a house and lightly injured one Israeli in Yehud, a Tel Aviv suburb near the airport.
Police said the rocket landing was the closest to the airport since fighting began July 8, when Israel launched a massive air campaign to stop relentless Hamas rocket fire into its territory.
Israel's Transportation Ministry called on the airlines to reverse their decision, insisting the Tel Aviv airport is safe and completely guarded and saying there is no reason to "hand terror a prize," by halting the flights.
— With files from The Associated Press.