Lydiate's place as a replacement is taken up by Sam Warburton, who faces the prospect of tackling the Wallabies for the second time in a week after representing the Cardiff Blues against their midweek touring side on Tuesday.
"Ryan pulled up in Tuesday's conditioning session with a back problem," said Wales physio Mark Davies.
"This obviously needed time to settle and unfortunately the problem has not resolved in time for him to be available on Saturday.
"He has been receiving treatment and was unable to train yesterday, but today we have taken the decision that he is simply not going to be ready to take the field."
Sam WARBURTON (CARDIFF BLUES - Cap No 1,070)
DoB: 05.10.88. 1.88m / 6'2". 15st 9lbs / 99kgs
International record: 2 caps (W 2)