"Shane has done everything he can to get up for this tour and left no doubt in our minds that he wanted to push through," national selector Rod Marsh said.
"Had the decision been left to Shane, he would be on the plane to Dubai, however as selectors we have taken a conservative approach to ensure he has the best chance of being fit for the big summer ahead.
"Right now we believe the best thing for Shane is to stay home and get 100 per cent fit as we know what a dynamic and destructive player he can be when his body is right. He remains an integral part of our plans for the summer."
The 33-year-old Watson, who has long struggled with his calves and hamstrings, said he will now focus on regaining total fitness before the busy summer.
"I'm naturally disappointed because I was desperate to play against Pakistan which is our opportunity to get back to number one in test and one-day international cricket," Watson said.
"Despite my strong desire to be on the tour, I understand why the selectors have made this decision.
"Given I can't be with the boys, my goal now is to work as hard as I can to get back to 100 per cent fitness so that I can make myself available for selection ahead of our series against South Africa in November.
"I've been here before and know what I need to do to get back to full fitness. That means remaining positive and working hard. We have a huge summer of cricket at home and my priority now is to play a big part in that."
After a one-off Twenty20 match on Oct. 5, Australia play Pakistan in three one-dayers over the following week before the first test starts on Oct. 22 in Dubai.