The UFC welterweight turned down an offer Saturday to face Condit on March 15 in Dallas, UFC president Dana White said.
Diaz (26-9), who suffered a unanimous decision loss to Condit in February 2012, will remain sidelined. He abruptly announced his retirement in March, following a loss to Georges St-Pierre in Montreal for the UFC title.
"I was trying to make the Carlos Condit versus Nick Diaz fight," White said. "Nick Diaz turned it down. He doesn't want it."
When asked whether Diaz gave any reason for not wanting the fight, White, who spoke to him in person, shrugged.
"You know how Nick Diaz is," White said. "He didn't want the fight. I thought that he wanted the rematch. But he said no."
Condit (29-7) was originally scheduled to meet Matt Brown on Saturday, but that fight fell apart due to injury. He still will fight on the UFC 171 card. The UFC is seeking a new opponent.
A slot against Condit would have offered Diaz an opportunity to get back into title contention. A welterweight fight between Johny Hendricks and Robbie Lawler for the newly vacated 170-pound title will serve as the main event of that March 15 card.
Diaz, 30, did tell White he is "maybe" interested in returning in May.