The Lakers said Nash, 40, who has been strongly tipped to retire after the 2014-15 campaign, had been sidelined after meeting with team doctors who advised him to sit out the season.
"As disappointed as we are for ourselves and our fans, we’re even more disappointed for Steve," said Lakers general manager Mitch Kupchak on Thursday.
"We know how hard he’s worked the last two years to try to get his body right for the rigours of the NBA, and how badly he wants to play, but unfortunately he simply hasn’t been able to get there up to this point in time. Steve has been a consummate professional, and we greatly appreciate his efforts."
The Canadian has said previously he expects this to be the final season of his brilliant career but he has not formally announced his retirement. This would be his 19th NBA season.
"Being on the court this season has been my top priority and it is disappointing to not be able to do that right now," said Nash.
"I've worked very hard to stay healthy and unfortunately my recent setback makes performing at full capacity difficult.
"I will continue to support my team during this period of rest, and will focus on my long-term health."
Nash has battled numerous injuries since joining the Lakers in July of 2012, appearing in just 65 of a possible 164 regular season games. The future Hall of Famer was limited to 15 games and 10 starts last season due to nerve damage from a leg injury he suffered the season before.
Nash ranks third in NBA history with 10,335 assists. His 90.4 percent free throw percentage is the best of all time.