The Spaniard was due to participate for the Indian Aces for the tournament that starts on November 28, but has pulled out due to "health reasons".
Nadal has not played since losing to Nick Kyrgios in the fourth round of Wimbledon due to a wrist injury, meaning he missed the opportunity of defending the US Open title earlier this month.
The world number two is set to make a competitive return at the China Open in Beijing next week and could play in Shanghai, Basel and Paris before competing in the season-ending ATP World Tour finals in London in November.
But he will not play in the IPTL so he can use the close-season to recuperate ahead of 2015.
"We regret to announce that due to health reasons, Rafael Nadal will not be playing in the IPTL," read a statement on the tournament's official Twitter account.
Federer, who has won a record 17 grand slam titles, has stepped in to replace his great rival.
"I'm really looking forward to making my first trip to Delhi," the Swiss said.
"My team tells me that there's a lot of tennis fans and supporters of mine in the area."