On Tuesday world number three Stan Wawrinka pulled out with a knee injury sustained during the Australian Open. The Swiss had been slated as top seed and Nadal was promoted to the slot following Wawrinka's demise.
But Nadal, who was beaten in five sets by Roger Federer in the final in Melbourne on 29 January, said his doctors had advised him to rest after his surge to the final. His schedule will resume in two weeks at the Mexican Open in Acapulco.
"I'm very sorry I won't be able to play in Rotterdam but the Australian Open took a lot out of me," Nadal said. "And my doctors are insisting I take it easy and get sufficient rest before playing again so as to avoid any fresh bout of injuries."
Nadal ended his 2016 season in October citing the wrist injury that had forced him to withdraw from the French Open last May and which ruled him out of Wimbledon the following month.
He accelerated his recovery to play at the Olympics in Rio in August where he won gold with Marc Lopez in the men's doubles and at the US Open where he lost in five sets to the Frenchman Lucas Pouille.
But the early return caught up with him at the Shanghai Masters and he ended his season just before the Swiss Indoors in Basel.
Rotterdam Open director, Richard Krajicek, said on Thursday: "It is obviuosly a big setback for us that he is not playing. We were, just as all the tennis fans, strongly looking forward to seeing him in action in Rotterdam. We immediately tried to get a proper replacement for him, but that proved impossible."
In Nadal's absence, Marin Cilic will be the top seed and Dominic Thiem will start as second seed.