The game was scheduled to be played in Honolulu on Friday.
"The health and safety of our student-athletes is the most important part of this decision," Hawaii athletics director David Matlin said in a statement. "The recent surge in COVID-19 cases has forced us to not participate in the game.
"We are disappointed for our players, coaches, and fans. ESPN and the EasyPost Hawai'i Bowl staff did everything they could for us and we appreciate their valiant effort throughout the week.