Olympic diving medallist Leon Taylor is out of the World Championships after failing to recover from a back injury.
Taylor won synchro bronze with Waterfield at the 2005 Worlds
The Briton underwent a fitness test in Melbourne on Tuesday which convinced team bosses to withdraw him.
Team-mate Nick Robinson-Baker pulled out of the event on Monday after twisting an ankle in training.
Sheffield's Taylor said: "The medical staff have done an excellent job but I've simply run out of time. The sensible decision has been made."
He added: "Since the turn of the year I've found myself on the back foot through injury and illness.
"Every time I get back into training, something else crops up and sets me back again.
"I've adjusted my goals and the next step is to qualify Britain for the Beijing Olympics in the Men's 10m Synchro at next year's World Cup."
Britain will not replace Taylor in Sunday's 10m Synchro event but partner Pete Waterfield will still dive in the 10m individual event.
Robinson-Baker had been due to partner Ben Swain in the men's 3m synchro event in Melbourne.