The injury-prone Watson sprained an ankle after stepping on a ball during training in Brisbane on Saturday, CA said.
"Shane today sprained his right ankle at training, damaging an ankle ligament," team physiotherapist Alex Kountouris said in a statement.
"His ankle is swollen and sore, but expected to recover with a period of rest.
"Due to the compact nature of the tour, we've made a decision that Shane would be unlikely to recover sufficiently in time for the series.
Chief selector Rod Marsh said Hughes was the natural replacement for Watson.
"As I've said previously, Phil was unlucky not to be picked in the initial squad after showing some great form in the Australia A series and was the natural choice to come in for Shane," Marsh said.
"The selection panel is very happy with the bowling depth in the squad but Watson's absence has meant another top order batsman is necessary."
Hughes will join the squad in Brisbane pending the situation of the Australia A match against South Africa A in Townsville in north Queensland.
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