Brisbane's Anthony Milford and Newcastle's Kalyn Ponga will be flown into Melbourne as potential replacements.
Veteran fullback Slater's shock withdrawal after aggravating a hamstring injury is a major setback for a Maroons team already without a total of 151 Origin games worth of experience as they begin life without retired greats Cameron Smith, Johnathan Thurston and Cooper Cronk.
Slater - a veteran of 29 Origins - had already confirmed he would retire from representative football after the 2018 series.
"I didn't pull up as well as I would have liked after our training run on Sunday, and because I'm not 100 per cent, it's in my best interests as well as the team's to withdraw from Wednesday's game," Slater said in a statement.
Earlier on Monday Walters told a packed MCG press conference that Slater and their other injury concerns Ben Hunt (thigh) and Josh McGuire (ankle) would play.
While admitting the Maroons had been "a little worried" about Slater, he gave the fullback a clean bill of health.
"They are all going well and on target. We have one training session to get through but we expect a fully fit team on Wednesday night," Walters said.
Walters later changed his tune after news of Slater's exit broke, saying he would decide Slater's replacement closer to kick-off.
Brisbane playmaker Milford has played one Origin while Newcastle's Ponga is in line for a possible debut with just one day left to prepare.
"We knew we had some concerns with Billy, but he's a champion player and we needed to give him every chance to play," Walters said in a statement.
"We've had plans in place to cover Billy if he didn't come up right, and we've actioned that today with Anthony and Kalyn coming in."
Meanwhile, Walters confirmed Cronulla flyer Valentine Holmes would be the Maroons' new goal kicker in Origin I.
Dane Gagai and Cameron Munster were the other options.
"We expect Val to be kicking for us. He is not kicking in clubland but always practising," he said.
Greg Inglis becomes Queensland's 13th captain and third indigenous Maroons leader when he officially takes over from 42 Origin great Smith on Wednesday.