The 14-time major winner has been suffering with back problems and has not played since he withdrew from the Dubai Desert Classic on 3 February.
Woods, 41, has won the Masters four times and the first major of the season begins at Augusta on 6 April.
“I’m especially disappointed because I wanted to help honor Arnold,” he said.
“This is one event I didn’t want to skip. Arnold has meant so much to me and my family; I thought of him as a close friend. He will be greatly missed and can never truly be replaced.”
Palmer, who won seven majors, died last September at the age of 87.
Woods who last played in the event at Bay Hill in Orlando in 2013 has won it a record eight times. No other player has won it more than twice.
Source: BBCsport
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