The world number three has not played since his shock second-round defeat to Lukas Rosol at Wimbledon after his long-standing knee problem resurfaced during his successful run at the French Open.
And there must be serious question marks about his participation at the season's final grand slam, the US Open, which starts on August 27.
Nadal posted on his Facebook page: "Hi all, wanted to let you know that I won't be playing Toronto this year.
"I am not ready to play and I hope to be back in 2014 at that great tournament that has always treat me very well.
"I am continuing with my recup and practice. Thanks!"
Nadal has played in Toronto every year since his debut appearance in 2004 and tournament director Karl Hale admitted his absence was a blow.
He said: "We're obviously disappointed that he won't be in Toronto this year but we wish him a speedy recovery so he can return to the Tour as soon as possible."