James, the 2013 world sprint and keirin champion, will miss the Games because of a knee injury, it was announced by Welsh Cycling in conjunction with British Cycling.
The 22-year-old would have been Wales' leading cycling medal contender at the Games in Glasgow and had been selected in a 17-strong team.
Speaking of the decision, James said: "As announced today, unfortunately I will be withdrawing from the Team Wales cycling squad for the forthcoming Commonwealth Games.
"The reason for this is a knee injury sustained following a period of medical rest.
"In May, I received abnormal results from a routine smear test, and following the biopsy results I underwent minor surgery which I'm pleased to say was successful.
"The surgery, however, meant two weeks away from my usual training regime.
"Following the rest, in an effort to make up for lost time, I aggravated a knee injury that will rule me out of the Games.
"I am terribly disappointed I won't be competing in Glasgow. I still hope to be in Glasgow cheering the team on, and wish the entire team the best of luck."
James has won six world championship medals, while she also took sprint silver and time trial bronze at the 2010 Commonwealth Games in Delhi.
Matt Cosgrove, performance director at Welsh Cycling, added: "Athletes' health is our priority.
"Although it is disappointing that Becky will be absent from the Team Wales cycling squad in Glasgow this summer, it is important that Becky now looks after herself and she is on the road to recovery.
"We look forward to seeing her back on the bike and competing in the near future."
And Chris Jenkins, chief executive of the Commonwealth Games Council for Wales, said: "Although Becky will not be competing in Glasgow we are delighted she is recovering.
"While she will be missed, her support of the team will mean a lot to every athlete. We all look forward to seeing Becky compete again very soon."