The four-time major winner said skipping the tournament in Lahinch, in the Republic of Ireland, would give him a better chance of winning the Open, which is returning to Northern Ireland for the first time since 1951.
"If there is ever a year when I feel I can miss this Irish Open, it's this year," McIlroy told BBC Sport Northern Ireland.
The former world number one said his plan to "tune up" for the Open Championship at Royal Portrush, from July 18 to 21, by competing in the Scottish Open, meant that he was forced to miss the Lahinch tournament in order to keep himself fresh.
"If I was to play the Irish Open, the Open Championship would be my third event in a row," he said. "For me, that's not the best way to prepare for what could be the biggest event of my life."
McIlroy, who won the British Open in Liverpool in 2014, has been Irish Open tournament host since 2015.
The Irish Open takes place on July 4-7, with the Scottish Open held the following week in North Berwick.
The 29-year-old, currently eighth in the world rankings, will keep his European Tour membership for next year.
In November he hinted he could give up his membership in an effort to get back to the top of the world rankings, saying he planned to concentrate on playing in the United States.
McIlroy is a three-time champion of the Tour's Race to Dubai and has been a part of every European Ryder Cup team since 2010.
But he said he would play the "minimum" required number of events to keep his membership and remain eligible to play in the Ryder Cup.
"I wouldn't miss that (the Ryder Cup) for the world. I'm still going to be a member of the team," he said.
"I'm just going to sort of play as little as I can (on the European Tour) to save myself for the golf that I'm playing everywhere else also."