The 6-foot-7 inch Butler, who was scheduled to make his second career all-star game appearance, missed the Wizards' last six games before the all-star break because of a painful hip flexor injury.
"I'm feeling better, but it's still not at the point where I can go out there and play with confidence," Butler told Washington Post.
He averages 21.7 points per game.
Allen, whose average is 18.5, gets his eighth NBA all-star appearance.
He joins Celtics teammate Paul Pierce on the East squad.
"Obviously, I'm ecstatic for my career to be able to be an eight-time All-Star," Allen told the Boston Globe. "I definitely feel like I'm privileged."
Boston forward Kevin Garnett also was picked but an abdominal strain will cause him to miss the contest.
He will be replaced by Detroit's Rasheed Wallace.