The 20-time Grand Slam champion announced on Wednesday (October 30) that he was pulling out of the new 24-team event, which will take place in Australia in January.
"It is with great regret that I am withdrawing from the inaugural ATP Cup event," world number three Federer said in a statement published on the ATP Cup's website.
"When I entered the event last month, it was a really difficult decision because it meant less time at home with the family and a fully intense start to the season.
"After much discussion with both my family and my team about the year ahead, I have decided that the extra two weeks at home will be beneficial for both my family and my tennis.
"It pains me to not be a part of the most exciting new event on the calendar, but this is the right thing to do if I want to continue to play for a longer period of time on the ATP Tour.
"I am sorry for any inconvenience or disappointment my withdrawal may cause for the fans, but I hope you can understand why I made it."
The 38-year-old's decision means Switzerland have been omitted from the ATP Cup as the nation's second-highest ranked player Henri Laaksonen is way outside the top 18.