Mr Giuliani was believed to be a lead contender for the role of Secretary of State. But the Trump transition team said that the man once called "America's Mayor" ruled himself out for the position.
Among the men in consideration to run the State Department are former presidential candidate and once Massachusetts Gov Mitt Romney, Exxon CEO Rex Tillerson, former Ford CEO Alan Mulally, Sen Bob Corker, and retired Admiral James Stavridis.
According to the Trump transition team, Mr Giuliani had withdrawn from consideration on 29 November, although the precise reason remains unclear.
"This is not about me; it is about what is best for the country and the new administration," Mr Giuliani said of his decision. "Before I joined the campaign I was very involved and fufilled by my work with my law firm and consulting firm, and I will continue that work with even more enthusiasm."
Mr Giuliani will keep his position as vice chairman of the transition team.
The President-elect lauded Mr Giuliani for his tireless work on the campaign trail, acting as Mr Trump's most vocal surrogate in the race against Hillary Clinton.
"He is and continues to be a close personal friend," Mr Trump said, "and as appropriate, I will call upon him for advice and can see an important place for him in the administration at a later date."
He added: "Rudy would have been an outstanding member of the Cabinet in several roles, but I fully respect and understand his reasons for remaining in the private sector."
A Trump transition aide told Politico that Mr Romney, Sen Corker, and Mr Tillerson are the three front-runners. The aide said that Mr Giuliani's public audition for the role did not sit with the transition team well.
"Giuliani started doing interviews with himself, and that bothered people. You never want to be more controversial than the boss," the aide said
"The issue with Trump is you need to close the deal when he's in the mindset. He's not in the Rudy mindset anymore."
One associate close with Mr Giuliania, Tony Carbonetti, said that the mayor was only interested in serving as Secretary of State.
"He didn't want another job in the administration," he told Politico. "I think when he realised it was becoming a distraction, he decided it was time to remove himself from consideration. I don't think there was a lot more to it than that."