The former Wimbledon and French Open champion had her four-year doping ban cut to nine months by the top court for global sport in March and made her return as a wildcard at the Miami Open, where she fell in the first round to Paula Badosa (26).
"Unfortunately my body needs a little more time to be ready and I have made the tough decision not to play in Madrid," she wrote on X.
"Tough because I want to be back on tour asap, but experience tells me not to rush. Thank you to @MutuaMadridOpen who offered me the wildcard and to my fans."
The former world number one was suspended in October 2022 after testing positive for roxadustat - a banned drug that stimulates the production of red blood cells - at the U.S. Open that year.
She was also charged with another offence last year due to irregularities in her athlete biological passport, a method designed to monitor different blood parameters over time to reveal potential doping.
But Halep, who denied any wrongdoing, was allowed to return to action after the Court of Arbitration for Sport cut her ban to nine months after accepting the Romanian's explanation that a contaminated supplement was to blame for her positive drugs test.
Halep was ranked inside the top 10 when she was suspended but has since seen her ranking plummet to 1,146.
The WTA has begun a review of its rules that could see players cleared of doping offences or have their bans reduced return to the circuit with "special rankings" in future, the governing body of women's tennis told Reuters last month.
