In an email first mailed to the Indianapolis Star and obtained by Fox News, Daniels said that he is caught between conflicting duties: family and country.
"The answer is that I will not be a candidate. What could have been a complicated decision was in the end very simple: on matters affecting us all, our family constitution gives a veto to the women's caucus, and there is no override provision," he said.
In a companion note to supporters, he added that he is "deeply concerned, for the first time in my life, about the future of our Republic" but that he is family was the most important factor in his decision to opt out of a run.
"In the end, I was able to resolve every competing consideration but one," Daniels wrote. "The interests and wishes of my family is the most important consideration of all. If I have disappointed you, I will always be sorry."
Daniels had been considering a bid for months, pressured by many in the establishment wing of the party hungering for a conservative with a strong fiscal record to get into the race. He never sounded particularly enthused about a national run, and always pointed back to his family -- his wife and four daughters -- as the primary consideration.
He becomes the latest Republican to opt against a run as the GOP searches for a Republican to challenge President Obama in 2012.
The Indiana governor's close friend, Mississippi Gov. Haley Barbour, surprised much of the GOP when he pulled the plug on a candidacy in April; he privately had encouraged Daniels to run instead. A week ago, former Arkansas Gov. Mike Huckabee, the 2008 Iowa caucus winner, bowed out, followed quickly by celebrity real estate developer Donald Trump.
They followed others who decided to sit this one out as well, even as polls show Republican primary voters wanting more options in a race that includes former Govs. Mitt Romney of Massachusetts and Tim Pawlenty of Minnesota, as well as former House Speaker Newt Gingrich and a handful of others.
In the wake of the decisions by Barbour and Huckabee to skip the race, the clamoring among establishment Republicans for Daniels to run -- including from the Bush family circle -- had become ear-shattering.
Daniels, a former Office of Management and Budget director under President George W. Bush, had sounded more optimistic about a run in the past week than he had in months, though he never had sounded particularly enthused. And his advisers had been quietly reaching out to Republicans in Iowa and other early nominating states for private conversations.
But, as he talked about a candidacy, he always pointed back to his family as the primary issue that would hold him back.
And as he weighed a bid, the spotlight shown on his unusual marital history as well as his record as governor.
His wife, Cheri, filed for divorce in 1993 and moved to California to remarry, leaving him to raise their four daughters in Indiana. She later divorced, and she and Daniels reconciled and remarried in 1997.
Mrs. Daniels had never taken much of a public role in her husband's political career so it raised the specter he would run when she was chosen as the keynote speaker at a major Indiana fundraiser earlier in May.
Both husband and wife were said to be pleased with the reception they got, and advisers privately suggested that the outcome could encourage Daniels to run for president. Even so, Republicans in Washington and Indiana with ties to Daniels put the odds at 50/50.
Daniels used his time considering a run to also shine a spotlight on rising budget deficits and national debt -- even though his former boss grew the scope of government and federal spending during his tenure.
Daniels, a one-time senior executive at Eli Lilly & Co., caused a stir among cultural conservatives by saying the next president facing economic crisis "would have to call a truce on the so-called social issues."
He is looked with admiration in GOP circles for being the rare Republican who won office in a Democratic year -- 2008 -- in a state that Obama had won. And, since being re-elected, he has leveraged Republican majorities in the state Legislature to push through a conservative agenda.
The Indiana Democratic Party also suggested Daniels' absence from the GOP race was a letdown.
"We've disagreed with Mitch Daniels myriad times, but there's no doubt that his decision not to enter this race is a loss for Republicans," said state party chairman Dan Parker. "Daniels would have brought a serious tone to a GOP field that’s thus far been characterized by silliness and distraction."
Daniels made his intentions clear in a characteristically understated e-mail.
It ended: "Many thanks for your help and input during this period of reflection. Please stay in touch if you see ways in which an obscure Midwestern governor might make a constructive contribution to the rebuilding of our economy and our Republic."
The Associated Press contributed to this report.