The Italian Olympic Committee (CONI) said Monday that Schwazer tested positive for doping and has been removed from the team.
Earlier Monday, the team said an unidentified athlete had failed a doping test conducted for the World Anti-Doping Agency before arriving in London. Details of the alleged doping offense were not given.
The 27-year-old Schwazer had been due to defend his 2008 Olympic title in the 50-kilometer walk on Sunday.
Schwazer won gold at the Beijing Games in an Olympic record time of 3 hours, 37 minutes, 9 seconds.
The Italian athletics federation said it was notified of Schwazer's doping test results on Monday afternoon.
"While fully agreeing with CONI's choice, (the federation) expresses deep disappointment for what happened, underlining its strong stance of condemnation against every form of doping," it said in a statement.
Schwazer, a two-time world championships bronze medalist, works as a police officer, according to his biography on the official London Olympics website.
He is one of the best known athletes in the 286-member Italian team at the London Games.
Schwazer's profile has been raised at home because his girlfriend, Carolina Kostner, is the reigning women's figure skating world champion.
