The second-ranked Djokovic says "I did everything possible in order to play in Madrid ... but unfortunately my right arm injury has flared up again."
Djokovic lost in the semifinals at Monte Carlo to Roger Federer. The Serb played with heavy strapping on his right wrist and was unable to serve or return to his usual level.
The second-seeded Djokovic was set to play against either Martin Cilic or Joao Sousa.
Djokovic says he will now work toward playing in his next tournament in Rome, which starts May 11.