American downhill skiing star
"I did everything I possibly could to somehow get strong enough," she wrote on Facebook. "But the reality has sunk in that my knee is just too unstable to compete at this level."
Saying that she feels "devastated," the 29-year-old racer added that she will have surgery soon.
Vonn's decision comes a month before the Games in Russia, where she had hoped to defend her gold medal in the downhill. She is also a four-time overall World Cup champion.
Her knee was originally injured at the world championships early last year. After surgery, she attempted a comeback this winter but suffered one setback after another.
First, a repaired ligament was damaged during a training run in November. Then she strained an MCL during a race in Val d'Isere, France, last month.
The U.S. team now heads for Sochi without one of its veteran athletes and most recognizable faces.
Vonn, who is the girlfriend of golfer Tiger Woods, wrote: "I will be cheering for all of the Olympians and especially team USA."