Updated March 13, 7:30 p.m.
The eight-time Bay Hill champion said he's still working to get his game back in shape after an embarrassing start to the 2015 season.
"I spoke to Arnold today and told him that I will not play in his tournament this year," Woods said in a statement on his website. "I'm sorry I won't be in Orlando next week, but I know it will be a really successful event."
Woods missed the cut at the Phoenix Open after shooting a career-worst 82 in the second round. Woods then withdrew the following week from the Farmers Insurance Open because of another back injury. In both starts, the 79th-ranked player in the world also continued to struggle with his chipping. In a statement released on February 11, Woods said his back was feeling better, but he wouldn't return to the Tour until his game was in better shape.
"I've put in a lot of time and work on my game and I'm making strides, but like I've said, I won't return to the PGA TOUR until my game is tournament ready and I can compete at the highest level," Woods said Friday.
Palmer released a statement shortly after Woods.
"Tiger called me personally this afternoon to let me know that he wouldn't be playing here at Bay Hill," Palmer said. "He said that his game is not quite ready yet and that he was disappointed that he won't be able to play in the tournament, which has always meant a lot to him. I'm sorry that he won't be playing. We'll certainly miss him, but I understand and appreciated that he called me."
With Woods out at Bay Hill for the second year in a row, there are only two tournaments left – the Valero Texas Open and the Shell Houston Open – before the Masters, which Woods missed last year for the first time as a professional while recovering from back surgery.
If Woods were to break from his traditional schedule and add an event before the Masters, Houston seems a likely choice. The course is set up similar to Augusta with light rough and tightly mowed grass around the greens.
While Woods didn't say if he would play one of the Texas events, he's still holding out hope to play in the first major of the season.
"I hope to be ready for the Masters, and I will continue to work hard preparing for Augusta," Woods said.
This year will mark the 10-year anniversary of Woods’ last win at the Masters.
Missing AP, but making strides and working hard towards hopeful Masters return. http://t.co/KlNFDIeZYi— Tiger Woods (@TigerWoods) March 13, 2015
"I spent quite a bit of time down at Tiger's house and trying to be a good running mate and practicing with him, I can attest to the fact that things are improving and he is putting in solid work days and it's not at the status he wanted. We had a discussion about this last week and he mentioned that he wanted to come back when he is ready to win. I agreed 100 percent and sometimes it's difficult when you want to get out there ...
"At the end of the day, if his game is not going to hold up from tee to green and especially with the question marks, I think it's a good decision for him to hold off until he feels like he is 100 percent."