The 24-year-old, who helped Team GB claim team pursuit gold at London 2012, was due to take his place in Team Sky's nine-man squad for the opening stage in Belfast on Friday.
However, Kennaugh has been forced to pull out due to illness, the same causing him to also withdraw from Liege-Bastogne-Liege at the end of last month.
Chris Sutton has been named as his replacement in the squad, but Kennaugh insists he wishes he could still play his part in the first Grand Tour of the season.
"The Giro is one of my favourite races and I would have loved to have ridden it again," Kennaugh told the Team Sky website.
"A lot of my friends and family were planning on coming over to Ireland for the start, and I was looking forward to racing back in Italy. This bug laid me low though and it was a tough one to shake off.
"I'm feeling better now but I'm behind on where I wanted to be and the decision to withdraw was taken after I'd chatted with the doctors and coaches.
"Now I'm back in training and the plan is to be competing again in a few weeks' time."
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