The American was forced to pull out of her doubles match with her sister Venus at Wimbledon last week after struggling in the warm-up and requiring treatment from the doctor.
"This is of course a hard blow to the tournament," Swedish Open director Nina Wennerstrom said in a statement Thursday.
Williams decided to withdraw from the encounter following the third game after serving four successive double faults as she appeared to struggle with her vision.
Williams, who won the Swedish Open last year, said in a statement: "I have decided not to play in Bastad next week because I am still not at 100 percent. I want to be in top physical shape to compete and I expect to start training next week.
"I want to thank all of my fans in Sweden, and everyone associated with the Collector Swedish Open for their support and understanding. It was my favorite spot to play last year and I am deeply saddened I cannot return. But there is always next year, and believe me, I look forward to it."
Williams is next scheduled to play at the Bank of the West Classic in Stanford, Calif., which is scheduled for July 28-Aug. 3.