The Australian number one, considered one of the favourites after reaching his first grand slam singles final at Wimbledon last summer, had not played a warm-up event because of a knee injury.
He contested a charity match against Novak Djokovic on Friday and did not indicate his participation was in doubt, but he called an impromptu press conference on Monday afternoon.
“I’m devastated, obviously,” said Kyrgios. “It’s my home tournament. I’ve had some great memories here. Obviously, last year winning the title in doubles and playing the best tennis of my life probably.
“Then going into this event as one of the favourites, it’s brutal. All I can do now is just look forward, do what I need to do and come back.”
Kyrgios’ physiotherapist Will Maher revealed a small tear in the Australian’s left meniscus had caused a cyst to develop, which will need to be removed surgically.
Maher said: “To Nick’s credit, he did try everything, to the point even last week he was having a procedure called a fenestration and drainage where they use a syringe to try and drain the cyst, which Nick has some pretty gruesome photos of.
“We used the charity event against Novak as a gauge to see if he could compete at that highest level. He didn’t pull up great, and he still tried to give himself every chance in the following days to have subsequent training. But it was clear that with each passing session that he was getting sorer and sorer.”
Kyrgios eventually made the decision after a hit with his great friend Thanasi Kokkinakis, with whom he won the doubles title last year, on Monday.
“He pushed me around the court a little bit,” said Kyrgios. “It was easier to make the call today.
“It doesn’t feel good. When I finish a session or finish a match, it’s just constant throbbing. I’ve barely had a good night’s sleep the last four, five nights.”
The good news for Kyrgios is it should be a simple injury to fix and he could be back for the BNP Paribas Open in Indian Wells in early March.