Basso was suffering from a cyst, which made it impossible for him to pedal correctly, his Cannondale team said in a statement on Thursday.
Compatriot Damiano Caruso would replace Basso in the squad, Cannondale said.
The 35-year-old climber won the Giro in 2006 and 2010 but was not regarded as a top contender this year, having shown poor form this season.
Basso also twice finished on the Tour de France podium, taking third place in 2004 and second place in 2005.
The Giro starts in Naples on Saturday and finishes in Brescia on May 26.
(Reporting by Julien Pretot; Editing by Amlan Chakraborty)
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