Carter, last year's slam dunk champion, told Stu Jackson, the NBA's vice president of operations, that he didn't feel he could physically do it.
Carter says he has a sore left knee, an injury that caused him to miss five games earlier this season.
Jackson called Carter on Friday after hearing reports that Carter wouldn't participate.
Last year, Carter wowed the basketball world with an assortment of crowd-pleasing slams in the NBA's first dunk contest since 1997.
Carter's first dunk a reverse, 360-degree slam effectively ended the contest.
He received a perfect 50 on three of his five stuffs to easily defeat the rest of the six-man field.
The third-year guard, who doesn't like to be known just for his dunks, has received 1,039,704 votes for this years All-Star festivities.
The slam dunk contest will be held in Washington, D.C., on Feb. 10, one day before the All-Star game.
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