The British No1 suffered an elbow injury in her second-round defeat by Kiki Bertens in the ASB Classic in Auckland earlier this week.
Watson tweeted: “I injured my elbow in my singles match, I have to withdraw from Hobart. Doing everything I can to get healthy.”
The 20-year-old lost 6-4 3-6 6-3 to Bertens, only managing to convert five of 12 break-point opportunities against the world No63.
Watson became the first British woman to win a WTA singles title in 25 years when she won the Japan Open in October.
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