The 20-year-old, accused of not trying during a match at Wimbledon this year and handed a 28-day suspended ban by the ATP after making lewd suggestions about the girlfriend of opponent Stanislas Wawrinka during a match in Montreal last month, is his country's second-ranked player at No 37 in the world.
Bernard Tomic, who also has a chequered disciplinary record and volatile relationship with Tennis Australia, veteran Lleyton Hewitt, Sam Groth and teenager Thanasi Kokkinakis will make up Wally Masur's team in their first semi-final since 2006.
"After some good healthy discussion with Nick and his team we have agreed on a plan to help him develop all aspects of his game and ensure a long and successful future in the sport," Masur said.
"Next week's tie has come a bit too soon for him and he is not in that plan."
Kyrgios burst on to the scene last year at Wimbledon when he knocked out Rafa Nadal with a breathtakingly brash display of power tennis and is regarded as a future grand slam champion.
However, his combustible temperament has attracted criticism with many disliking his on-court antics which often turn the air blue and reached a peak in Montreal when microphones picked up his foul-mouthed remarks aimed at French Open champion Wawrinka.
At Wimbledon this year he appeared to "tank" a game, declining to return Frenchman Richard Gasquet's serve during a fourth-round defeat.
He then accused former Australian Olympic swimmer Dawn Fraser of being a "blatant racist" after she criticised his attitude.
After the Wawrinka incident Masur said Kyrgios was still in his plans for the Davis Cup, but he clearly feels the highly-charged atmosphere of a semi-final is not the right environment for the hot-headed player.
Masur has, however, offered Tomic the chance to heal his rift after the 22-year-old's war of words with Tennis Australia and a run-in with the police in Miami.
Australia's No 1, dropped for the quarterfinal win over Kazakhstan, has been warned though.
"So far he has demonstrated a will to change and backed that up with his actions. But it is a long road and he is now very acutely aware of the consequences of any future transgressions," Masur said.
"There is very little room for error in the future."
