The actress was due to play the late porn star in Inferno, but her ongoing treatment at the Betty Ford Centre has made it "impossible" for her to continue on the project, according to E!.
Director Matthew Wilder said: "We are withdrawing our offer from Lindsay Lohan. We are currently in negotiations [with another actress] and working out the legalities of bringing her onboard.
"We have stuck by Lindsay very patiently for a long time with a lot of love and support. Ultimately, the impossibility of insuring her - and some other issues - have made it impossible for us to go forward."
Lohan's rep added: "Lindsay is dedicated to her recovery and together they decided to move forward without her."