"I am very disappointed to leave the race at this point," Dennis said in a statement released by his Bahrain Merida team on Friday.
"Obviously the individual time trial tomorrow had been a big goal for me and the team but given my current feeling it was the right decision to withdraw."
Time trial world champion Dennis, one of the favourites for Friday's 27.2-km individual effort against the clock, pulled out 80km from the finish of the 12th stage on Thursday.
The Australian's team, Bahrain Merida, however, were unable to locate him for over an hour, before he was spotted with his bike parked against the team bus near the finish line.
According to French TV, Dennis was seen arguing with his team car before climbing off his bike.
Sports director Gorazd Stangelj told reporters he 'knew nothing about it', adding that Dennis's withdrawal had 'nothing to do with his physical condition'.
"I wish my team mates the very best for the remainder of the race ... I will hopefully be back competing in this great race over the coming seasons," Dennis, 29, added.
Last month Dennis had told the Stanley Street Social podcast that 'in 2018, I reckon there were half a dozen times when I thought - I could quit right now'.
It has been a weird Tour for Bahrain Merida, who celebrated a stage win when Dylan Teuns won at top of La Planche des Belles Filles in the sixth stage, before their French campaign took a sour turn on Thursday.
In addition to Dennis's mysterious withdrawal, 2014 champion Vincenzo Nibali, who had already dropped out of contention, suffered at the back of the pack because of a stomach bug, fuelling speculation that he might quit the race.