The 29-year-old Rangers captain was called up on Tuesday but will not travel for the World Cup qualifying campaign opener.
Manager Gordon Strachan will make no further additions.
Celtic's Leigh Griffiths and Kieran Tierney dropped out of the original squad with knocks, along with midfielders James McArthur and Kevin McDonald.
Hearts forward Tony Watt was drafted in at the same time as Wallace, who won the last of his eight caps in 2013.
Hull's Andy Robertson is now the only recognised left-back in the squad of 24 for Sunday's game at the Ta'Qali Stadium.
Striker Griffiths came off injured after scoring in Celtic's 4-1 defeat of Aberdeen on Saturday.
The 26-year-old netted 40 times last season and has seven goals so far this term but has yet to score in seven appearances for Scotland.
Steven Fletcher, yet to score for new club Sheffield Wednesday, was Scotland's main striker in their unsuccessful Euro 2016 qualifying campaign, while Chris Martin and Steven Naismith also featured in attack for Gordon Strachan's side.
That trio and Watt make up the forward contingent of Strachan's revised squad.
Midfielder Robert Snodgrass is optimistic about being fit, despite a painful collision with a goalpost during Hull City's defeat by Manchester United at the weekend.
It will be Scotland's first game since midfielder and captain Scott Brown retired from international football.
West Brom's Darren Fletcher - a former national team skipper - could resume the armband duties.
Strachan's pool also includes winger Oliver Burke, who joined German side RB Leipzig from Nottingham Forest on Sunday in a £13m deal - making him the most expensive Scottish player.

An investigation has been launched at the Angel Hotel after management decided to shut it as a precautionary measure.
A spokeswoman said they were providing support to guests, 26 of whom have been struck down by gastroenteritis. No one needed hospital treatment.
The hotel has been contacting guests due to arrive over the next few days to help them make other arrangements.
Cardiff council said environmental health officers have confirmed the virus is gastroenteritis.
No further information can be given until the investigation has been completed, the spokeswoman added.
The council was notified on Wednesday that guests were falling ill at the hotel.
Teacher Kevin Waite from Gwaelod-y-Garth, Cardiff, said he fell ill over the weekend after attending a training event at the hotel on 5 June.
"I felt nauseous, I was having hot and cold flushes and my limbs were aching," he told BBC Wales.
"I started vomiting on Sunday and this lasted through until Monday."
Mr Waite said he has contacted the hotel to discuss his sickness and is waiting to hear from managers.
"The hotel looked plush, pleasant and clean. There was nothing to point to any problems," he added.
"I'm shocked and disappointed. But these bugs can happen for many reasons."
Full-back Lee Wallace has withdrawn from the Scotland squad to face Malta.
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A Cardiff hotel remains closed on Friday after a virus outbreak.