His decision means he will miss the first major tournament of his career -- next month's US Open, which starts at Flushing Meadows on August 28.
The world No. 4, who won the US Open in 2011 and 2015, hasn't trained since his shock withdrawal from the Wimbledon quarterfinals.
"After a year and a half of carrying an elbow injury I've made the decision not to play any competition for the rest of 2017," Djokovic, 30, said in a video posted on his Facebook page.
"All the doctors I've consulted, and all the specialists I have visited, in Serbia and all over the world, have agreed that this injury requires rest," he added in a statement on his website.
Djokovic's absence from the US Open ends a run of 51 consecutive appearances at grand slam tournaments, which stretches back to his first major, the 2005 Australian Open. Only Feliciano Lopez (62) and Fernando Verdasco (57) are on longer streaks
"It's a new experience for me, new circumstances," said Djokovic.
"I'm trying to look at it from a brighter side ... I have time where I can dedicate myself to healing and building up my body and focusing on certain aspects and elements of my game which I never had time to work on."
Last year -- also on July 26 -- Roger Federer announced he was taking the rest of the year off.
The break stood the Swiss star, who turns 36 in August, in very good stead with grand slam victories at the Australian Open and Wimbledon in 2017.
Will the same formula work for the 30-year-old Djokovic?
"I really want to play professional tennis for many years to come," added the Serb, who in his statement spoke of building "a foundation for the next five years or more."
During Djokovic's period of dominance -- in which he picked up 11 major titles in just five years -- many said the Serb was more machine than man.
But the 30-year-old has endured a considerable fall from grace since completing the career Grand Slam at last season's French Open -- failing to make a major final this year for the first time since 2009.
He was forced to retire due to the injury during his Wimbledon quarter-inal match against Tomas Berdych and in his Facebook statement Djokovic revealed that the pain "had intensified over the last couple of months."
Birth of second child
The Serb's absence from the Tour will coincide with a new arrival to the Djokovic family.
"Another important moment is coming, we will become parents for a second time. My wife Jelena and I are expecting our second child, and we are preparing to welcome a new family member.
"These are things that fill me with greatest happiness and delight. I'm confident I will be ready for start of the new season."
Djokovic also revealed he will continue working with Andre Agassi as his head coach.
"We've been speaking regularly. Andre was with me in Toronto and he helped me find doctors, specialists in treating elbow injuries.
"During this short period of time, we've been getting to know each other and building trust and understanding. He supports my decision to take a break, and remains my head coach.
"He is going to help me get back into shape and bounce back strong after the recovery period."