Donovan was part of the provisional 30-man squad, which has gathered at a pre-tournament camp in Palo Alto, California, but did not make the final cut selected by coach Juergen Klinsmann ahead of the June 12-July 13 tournament in Brazil.
The 32-year-old forward has played for the United States in the past three World Cups and was long considered the face of American soccer.
"It is certainly the toughest decision of my coaching career to tell a player like him, with everything he's done and what he represents, to tell him that you are not part of that 23 right now," said Klinsmann.
"I just see some other players slightly ahead of him. He's been part of that final 30 roster in terms of the last 10 days and he did everything right, he was always positive, he took it in the best way possible," added the coach.
Donovan took a short break from the game last year and missed some crucial qualifying games for the finals but was back for the 2013 Gold Cup and his omission will shock many fans.
Former Germany striker and coach Klinsmann has long made it clear however that Donovan should not be considered an automatic selection and last April said that the player had fallen down his pecking order.
It is still a major surprise that 18-year-old Julian Green, who plays in the lower leagues in Germany with Bayern Munich's second team, has made the squad ahead of the experienced Donovan.
Green, who only recently chose to play for the US ahead of Germany for whom is also eligible, plays in a wide attacking role, similar to the position that Donovan has filled for the US in most of his 156 games for the national team.
Donovan has scored a record 57 goals for the 'Stars and Stripes' including the winner against Algeria at the last World Cup in South Africa which secured a place in the second round.
"His disappointment his huge, I totally understand that, he took it very professionally because he is an outstanding professional player," said Klinsmann.
"He knows that I have the highest respect for him but I have to make decisions as of today, what is good for this group going into Brazil and there I just think the other guys are a little bit ahead of him. I told him that, he understands it but obviously he is very disappointed," he added.
The US face Ghana, Portugal and Germany in a tough Group G at the finals.
Before leaving for the tournament, Klinsmann's side will play friendlies against Azerbaijan in San Francisco on May 27, Turkey in Harrison, New Jersey on June 1 and Nigeria in Jacksonville on June 7.
Defenders: DaMarcus Beasley (Puebla), Matt Besler (Sporting Kansas City), John Brooks (Hertha Berlin), Geoff Cameron (Stoke City), Timmy Chandler (Nuremberg), Omar Gonzalez (LA Galaxy), Fabian Johnson (Borussia Moenchengladbach), DeAndre Yedlin (Seattle Sounders).
Midfielders: Kyle Beckerman (Real Salt Lake), Alejandro Bedoya (Nantes), Michael Bradley (Toronto), Brad Davis (Houston Dynamo), Mix Diskerud (Rosenborg), Julian Green (Bayern Munich), Jermaine Jones (Besiktas), Graham Zusi (Sporting Kansas City).
- Sports & Recreation
- Juergen Klinsmann