The 40-year-old was set to arrive at Old Trafford this month before their first game against Durham on 7 July.
Jayawardene said he was "very disappointed" he was unable to feature but gave no further details.
"We are reviewing and reassessing all options from a player perspective," said head coach Glen Chapple.
Jayawardene, who retired from international cricket in 2015, played for Somerset in last year's T20 Blast.
He is one of Sri Lanka's greatest batsmen, with 11,814 runs in 149 Tests and more than 12,650 in 448 ODIs.
Former Sri Lanka batsman Mahela Jayawardene has pulled out of playing for Lancashire in this summer's T20 Blast for "personal reasons".