Guadalajara organisers say they cannot afford the $100 million hosting costs, after the Mexican government announced recent budget cuts.
The director of the Mexican National Commission for Physical Culture and Sport, Jesus Mena, said he had informed swimming's world governing body FINA of Guadalajara's pullout.
"After reviewing the budget, we have determined that we must inform FINA that Mexico cannot host the world championships," Mena said.
The United States has never hosted the championships and officials said they had no plans to bid for 2017 because of the costs.
"We would love to host a long course world championships in the United States, but the economic requirements make it impossible for us to seriously consider," Chuck Wielgus, USA Swimming Executive Director, told Swimming World.