He has been replaced by Damian McKenzie, who was not in the original match-day 23.
All Blacks coach Ian Foster said Barrett's injury flared up during training on Friday and while it settled overnight it was decided not to risk playing him.
McKenzie, a utility who has started 15 of his 23 Tests at full back, last played a Test two years ago against Italy.
Although Jordie Barrett, who will start on the wing against Australia, has been the standout full back in New Zealand this year, Foster said it was logical to bring in McKenzie.
"He's a quality 15 and ready to go, and it means less disruption to the rest of the squad. All the other positions remain the same," Foster said.
Foster – overseeing his first Test as coach – also selected Richie Mo'unga at five-eighth against Australia, while George Bridge has been given the nod ahead of Caleb Clarke in the back-three.
Debutants Clarke, lock Tupou Vaa'i and loose forward Hoskins Sotutu are among the reserves, including Dane Coles.
"We really wanted to see how players adapted and fitted in and how comfortable they were coming back into the environment and so there were a number of positions that we wanted to keep an open mind about," Foster said.
"We're excited by the group. There's a lot of talent in there and we've got players jumping out of their skin and wanting an opportunity. It's been fantastic to come together and know at the end of the week there's a Test match.
"There's been a lot of hard work, but the tightness of the group and the desire and the excitement about playing an international game is right up there."
Damian McKenzie; Jordie Barrett, Rieko Ioane, Jack Goodhue, George Bridge; Richie Mounga, Aaron Smith; Ardie Savea, Sam Cane, Shannon Frizell; Sam Whitelock, Patrick Tuipulotu; Ofa Tu'ungafas, Codie Taylor, Joe Moody. Replacements: Dane Coles, Karl Tu'inukuafe, Nepo Laulala, Tupou Vaai, Hoskins Sotutu, TJ Perenara, Anton Lienert-Brown, Caleb Clarke