Woods was hoping he'd be healthy to play in the event, the first at the Orlando-area course since the legendary Palmer died in September at age 87.
"Unfortunately, due to ongoing rest and rehabilitation on my back, I won't be able to play in this year's Arnold Palmer Invitational," Woods said on his website. "I'm especially disappointed because I wanted to be at Bay Hill to help honor Arnold. This is one event I didn't want to skip."
Woods, 41, is attempting to recover from two back surgeries in 2015 that led to a 17-month layoff.
He hasn't played since he withdrew from the Omega Dubai Desert Classic on Feb. 3.
The only other tournament Woods has been able to play in during 2017 was the Farmers Insurance Open at Torrey Pines in late January. He missed the cut.
Woods has previously expressed that he would like to play in the Masters next month. But right now, he's not sure when he can get back on the course.
"Presently, I have no timetable for my return to golf, but my treatments are continuing and going well."