Mosley was due to meet Mundine at the Sydney Entertainment Centre on October 23 and had arrived Down Under in the build-up to the fight.
But the former world title holder across three weight divisions pulled out of the bout amid a dispute over payment, with Golden Boy Promotions claiming certain terms in the contract were not adhered to.
"I'm very disappointed with this turn of events because I was planning on making a big statement by beating Mundine, but I was left with no choice but to withdraw," said Mosley, who has already returned to Los Angeles.
"The fans in Australia have welcomed me with open arms, and I hope to return to fight for them one day in better circumstances."
Australia's Mundine was left bitterly disappointed by the decision and he blasted Mosley for his stance over the finances of the fight.
“I can’t believe this has happened,” Mundine told Australia's Daily Telegraph. “I wasn’t told until 10 o’clock last night.
“It’s a classic case of a sooky American.
“To want to be paid a million dollars before a fight is beyond demanding, but it’s what these big names want.”
Mundine said he tried to save the fight at the last minute by bringing in his own promotion team, but to no avail.
“I should have promoted the fight myself,” Mundine said. “I’ve promoted 45 of my 49 fights and there has never been an issue like this.
"I’m gutted because I’ve worked so hard for this fight. This tarnishes my name and that’s not right.
“It’s the worst setback I’ve ever had. I could have kept the fight going by raising the $700,000 he wanted, but it was too late.”
Richard Schaefer, CEO of Golden Boy Promotions, said: "It's unfortunate that this fight will not be taking place, and we apologise to all of Shane's Australian fans, but there are contracts in place for a reason, and when the terms are not adhered to, we have no choice but to protect our fighter, and that's what happened here."