The Munster Heineken Cup winning back row forward failed a fitness test he was forced to take after picking up a knock in last weekend's 23-11 defeat by the All Blacks in Wellington.
"David will be missed because he played very well against New Zealand last weekend and had a very good season with both Munster and Ireland," said Ireland's caretaker coach Michael Bradley.
Leinster's Shane Jennings will replace Wallace in the back row as one of three changes from the starting line-up in Wellington. Peter Stringer takes over from Eoin Reddan at scrum half and Rory Best replaces Jerry Flannery at hooker.
Stephen Ferris is drafted onto the replacement bench to provide back row cover for a game in which Irish skipper Brian O'Driscoll firmly believes his team can cause an upset.
"We are quietly confident that we will cause them a few problems. Physicality is what wins games and, if we win the game, I'm sure it will be largely down to our forwards," said O'Driscoll.
"If you win collision zones, whether you have the ball or not, you are off on the right track. There have been games when we have played as considerable underdogs and we have just gone out and overpowered the opposition.
"You need to do that every time you go out and play. It's a hell of a lot harder to defend than to attack and it starts from one to eight."
Ireland: R Kearney (Leinster); S Horgan (Leinster), B O'Driscoll (Leinster, captain), P Wallace (Ulster), T Bowe (Ulster); R O'Gara (Munser), P Stringer (Munster); M Horan (Munster), R Best (Ulster), J Hayes (Munster), D O'Callaghan (Munster), P O'Connell (Munster), D Leamy (Munster), S Jennings (Leinster), J Heaslip (Leinster).
Replacements: J Flannery (Munster), T Buckley (Munster), M O'Driscoll (Munster), S Ferris (Ulster), E Reddan (London Wasps), G Murphy (Leicester Tigers), G Dempsey (Leinster).