A message from the tournament's official twitter account read: "Novak Djokovic will not be playing in the Mutua Madrid Open. 'Sorry that I won't be able to travel to Madrid this year and meet all my fans", said Djokovic. 'It's been two years already, quite a long time. Hope to see you all next year!'".
Djokovic has only played four tournaments this year, having decided to take a break following his 18th grand slam success at the Australian Open in February.
The world number one suffered a surprise defeat to world number 28 Aslan Karatsev in the semi-finals of the Serbia Open on Saturday, after also losing to Dan Evans, ranked 33rd, earlier this month in Monte Carlo.
Djokovic is expected to play in Rome and Belgrade as he prepares for next month's French Open, where he will be hoping to deny Rafael Nadal a 13th title while looking to add to his own single success in Paris in 2016.
The Madrid Open starts this week, with the women's main draw beginning on Thursday and the men's tournament on Sunday.
Djokovic is the reigning men's champion after beating Stefanos Tsitsipas in the final in 2019. Last year's event was cancelled because of the Covid-19 pandmic.