Former England one-day captain Adam Hollioake will replace the Lancashire all-rounder in the squad for a one-day international series, starting on Friday.
Flintoff, a veteran of 21 Tests and 46 one-dayers, is the fifth England bowler to go home injured.
"We've had a very, very difficult decision to make over the last 48 hours. It's very disappointing for Andrew and also for the England set-up," Fletcher told reporters.
"Andrew's going to go back to the UK to try and get this injury sorted out, hopefully for the World Cup (which starts in South Africa in February).
"He's making no progress at the moment. I've been in touch with Lord's and it was agreed this was the right decision for England and Andrew."
Flintoff has missed all three Tests so far on the five-Test tour but played in Tuesday's match in Canberra against an invitational Australian Prime Minister's XI.
The all-rounder appeared less than match fit, making 13 runs and conceding 0-32 from 4.4 overs as the home side won by four wickets with more than 10 overs to spare.
"Going home isn't something I thought I would be doing, but I can go home and see the medical officer and do whatever he says and get ready for the World Cup and get 100 percent fit," Flintoff told reporters.
"I've done my rehab and done everything that was asked of me."
Hollioake will join the squad in Melbourne as a replacement for Flintoff ahead of Sunday's game against Australia.
Melbourne-born Hollioake, 31, who has captained England in 14 of his 35 one-day appearances, was named last week in England's provisional 30-man World Cup squad. The all-rounder has not played a one-day international since the 1999 World Cup.
Nasser Hussain's side arrived in Australia eight weeks ago and have not won any of their 11 matches so far, including three big losses in the Ashes Tests.
Pacemen Darren Gough (knee), Simon Jones (knee) and Chris Silverwood (ankle) and left-arm spinner Ashley Giles (wrist) are already back in England.
Batsman John Crawley (hip) and bowler Andrew Caddick (back, knee) have also missed Tests because of injury.
Off-spinner Jeremy Snape was ruled out for three weeks after breaking his thumb while batting against New South Wales in a match in Sydney on December 6.
England face world champions Australia in Sydney on Friday in the first match of a triangular one-day series which includes Sri Lanka.
Australia, England and Sri Lanka will play the first five matches from December 13-22 before the fourth and fifth Ashes Tests are played in Melbourne and Sydney on December 26-30 and January 2-6 respectively.
The one-day series resumes on January 9.