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.
Full-back Lee Wallace has withdrawn from the Scotland squad to face Malta.