The announcement is not a surprise, with the world number four having not played since his shock second-round loss to Lukas Rosol at Wimbledon in June.
Nadal missed the Olympics and the US Open after revealing he had a partial tear in his patella tendon, and it was always unlikely he would return during the indoor hard-court season, his least favourite surface.
The 26-year-old said: "It's disappointing for me to miss the last two tournaments of the season in Paris and London, but it doesn't come as a surprise.
"I will hopefully resume my tennis practice soon since I am making good progress with my recovery from injury.
"I am not ready to compete in time for these events so I will continue my recovery in Mallorca and work hard to be back as soon as possible."
Nadal's absence is nevertheless a blow to the World Tour Finals, which begin at London's O2 Arena in a week and a half's time and feature the best eight players of the season.
The player ninth in the list when qualification ends following next week's tournament in Paris will now take Nadal's place, with Serbia's Janko Tipsarevic currently occupying that spot.
Brad Drewett, ATP executive chairman and president, said on www.atpworldtour.com: "We wish Rafa all the best as he continues his rehabilitation from injury.
"Rafa is an incredible champion and it goes without saying that he has been missed on the ATP World Tour over the past few months. We look forward to welcoming him back on the tour very soon."
Nadal is now likely to return to action at an exhibition in Abu Dhabi at the end of December as part of his preparations for the Australian Open.