The 22-year-old Gwent Dragons forward, who made his name with Pontypridd, has failed to recover from the problem sustained following a weight-lifting session a fortnight ago and has been replaced by 33-times capped Scarlets lock Chris Wyatt.
"Five years ago I set myself the target of playing in this Rugby World Cup so to come this close and miss out is heartbreaking," said Owen.
"I can't believe the timing of this, I really thought I was going to achieve my dream. However as gutted as I am, it is the right decision.
"Even if I had gone to Australia I would only have been able to play in the latter games and if I had taken a knock, it could have resulted in an operation. As hard as it is, I have to look forward to my long-term future and not just take a short-term view.
"But the disappointment is painful and will be even harder when I watch the rest of the lads on the TV thinking I should be there."
Owen's long term view is shared by Wales Coach Steve Hansen who said they had taken for the "common sense" option not to risk further injury to the young player.
Hansen said: "At 22, he is still a young man and he has a lot of rugby left to play so we have decided his long term future is more important than his short term future career.
"Michael understands the situation and we are lucky to have an able replacement in Chris Wyatt to bring into the squad.
"Chris was unlucky to miss out on the final thirty man draft and we are pleased to welcome him back on board."
Owen, who has risen up through the age grades, booked his place in Welsh rugby history last year when he became the 1,000th Welsh cap during the summer tour to South Africa. He went on to play during the Autumn Internationals against Canada and New Zealand and three times during the RBS Six Nations.
However this is the second time he has missed out on a trip down under having also missed the summer tour to Australia and New Zealand through injury.
Owen's heartache, however, is Wyatt's joy following the disappointment of his surprise ommission from the original Rugby World Cup squad. The Scarlets lock has not played for Wales since the defeat to Scotland in Cardiff 17 months ago.