Watson, the Australian vice captain, appeared to injure his left calf playing for New South Wales against Queensland on Saturday and had been a doubt for the test which begins on Friday at the Gabba in Brisbane.
"We're ruling him out now because we think he won't be fit enough come Friday," Australia coach Mickey Arthur told reporters in Brisbane, where he confirmed Rob Quiney would make his test debut in the 31-year-old's absence.
"We wanted to make a decisive decision pretty early so we could give some real clarity to the team, so unfortunately Shane misses out and Quiney plays."
Cricket Australia had previously reported Watson's injury as calf-related but described it as a hamstring injury in a short statement on its website.
Watson's injury is certain to reignite fierce debate about the player's long-term management.
Watson has been blighted by back and leg injuries throughout his career and missed all of Australia's victorious home test series against India last year.
Some pundits and former players have called on him to shelve either his batting or his bowling, or scale down his participation in one-day and Twenty20 cricket.
Arthur poured cold water on Watson varying his playing regime.
"That hasn't been a topic of conversation at all just yet," the South African said.
"In an ideal world you want Shane Watson batting at three and bowling for you.
"The fact is we won 4-0 against India last year without Shane, so we're comfortable that we have the players, we have the cover."
Left-handed batsman Quiney would slot into the side at number three, Arthur said.
Quiney makes his debut as a 30-year-old with a batting average of 37 from 53 first-class matches, coming into the three-test series in good form after scoring 85 for Australia A against South Africa last week.
"I think he deserves his opportunity. Over the last couple of seasons he's been prolific, he's probably been the standout domestic player," Arthur said.
"I certainly think that players performing need to get picked, guys that have done the hard yards. Rob has certainly done that."
Former captain Ricky Ponting has also been under a cloud in the lead-up to the first test after he withdrew from Tasmania's Sheffield Shield match with hamstring soreness, but Arthur said he was "very confident" he would be fit to play in Brisbane.