After receiving the diagnosis from the Heat team physician, the All-Star guard, who helped Miami win the NBA title in five games over the Oklahoma City Thunder, informed USA Basketball chairman Jerry Colangelo that he was having the surgery soon and would be unable to compete in London.
"As many people may know, throughout the season, I struggled with a recurring knee issue," Wade said.
"After the championship game, I visited with my doctors for a round of comprehensive medical tests, and the recent results dictate the need for surgery.
"While every part of me wants to be in London, I need to take this time to do what's best to improve my health and allow me to continue to play the game I love."
Wade was the US team's leading scorer in their run to 2008 Olympic gold in Beijing, scoring a game-high 27 points as the Americans beat Spain 118-107 in the Olympic final.
Despite having his knee drained during the NBA play-offs, Wade averaged over 22 points a game during Miami's championship series triumph over the Thunder.
Wade's exit from the US squad left 17 players in the mix for 12 spots on the Olympic team following injuries that removed several players from consideration, including Derrick Rose of the Chicago Bulls and Dwight Howard of the Orlando Magic.
The remaining candidates for the US team will start training camp next week in Las Vegas.
Miami will still be represented in London, as three-time NBA Most Valuable Player LeBron James, who was also MVP of the championship series, has said he will definitely play in the Olympics.
His Heat team-mate Chris Bosh, however, was still undecided about the Olympics due to an abdominal injury that sidelined him during the NBA play-offs.