NPO chair Jet de Ranitz said the organisation had held discussions with broadcasters about participating next year.
"In those discussions, we initially felt there was sufficient support to return. Unfortunately, we were unable to find a suitable format for this.
"As a result, we must conclude that it is currently too early to participate in the Eurovision Song Contest in 2027.
"Due to the sensitivities surrounding the themes currently at play, we have decided to take a step back for the time being."
NPO acknowledged that some Dutch fans may be disappointed, but that the contest would still be aired in the Netherlands.
Eurovision Song Contest director Martin Green said he was "deeply sorry" that the Netherlands would not take part, but added that "we understand their decision, and we respect the strength of feeling behind it".
Green added that organisers recognise that opinions about the contest "differ widely, both within countries and between them", adding: "We do not dismiss any of those views.
"At the same time, we believe the Eurovision Song Contest matters in a divided world. It is one of the few moments each year when people from across Europe and beyond come together around music, creativity and shared experience.
"That spirit of unity is what the contest has always stood for, and we are committed to protecting it."
Green said they looked forward to welcoming a Dutch entry again when they "feel the time is right".