The 36-year-old has been strongly linked with a move to the MLS outfit, who are managed by former Blackburn Rovers defender Ryan Nelsen.
However, the former England striker has confirmed that "certain obstacles" have scuppered the move.
"It has been a complete roller coaster since first speaking with Ryan Nelsen on 18th April. As it stands today I will not be leaving for Toronto FC as reported," Davies said in a statement.
"My young family and I were naturally very excited about the opportunity of going to Toronto on a short-term deal but after legal advice we felt that certain obstacles put in our way were too large to overcome.
"Whilst it has been the toughest month of my 10-year BWFC career I remain, as I always have done, 100% committed to the club. I will be ready if the manager needs me and hopefully have a part to play in helping the club return to the Premier League."
"I have some fantastic memories of the last 10 years and feel honoured to have been the captain of this great club for the last five years. Hopefully it will finish with a fairy tale ending."
Davies's Bolton deal will expire at the end of the season.