The Valencia midfielder suffered a hamstring injury in Spain's opening group game win over Russia and will fly home for further treatment
Canales, who only featured as a substitute for the final quarter of his side's 1-0 win over Russia on Thursday, complained of a problem shortly after the match.
Coach Julen Lopetegui admitted he was "worried" about the 22-year-old's condition following the clash at Teddy Stadium, and it has since been confirmed that the Valencia midfielder will fly home for further treatment on an injury to his left hamstring, ruling him out of the remainder of the tournament.
Canales suffered a succession of injuries last season which curtailed his involvment in los Che's campaign, managing only 15 appearances in all competitions for the club.
Despite his lack of playing time, the former Real Madrid trainee has been linked with a return to Santiago Bernabeu this summer, with Carlo Ancelotti - the favourite to take charge of the Liga runners-up following Jose Mourinho's exit - believed to be a keen admirer of the midfielder.
Spain enjoyed a winning start to the defence of their U21 crown against Russia thanks to a late strike from Alvaro Morata.