Battling bronchitis for weeks, Thorpe took one last practice lap Tuesday before realizing his legs and arms were as worn out as his heart and lungs.
The Age reports Thorpe, with strained voice and runny nose, officially pulled out of the Games Tuesday afternoon at a press conference in Sydney.
The 23-year-old has won five Olympic gold medals, won 10 in the Commonwealth Games and holds the world record for 200- and 400-meter freestyle.
Despite the blow to organizers and media networks with a big star out of competition, Games Chairman Ron Walker said Thorpe's health is the most important.
Walker said: "Like the rest of Ian's fans in Australia and around the world, we share his disappointment that he will not be competing in Melbourne next week."