The decision comes as coronavirus concerns grow stateside and pressure ramps up over whether to cancel entertainment and sporting events that draw large crowds.
"The city of Austin has cancelled the March dates for SXSW and SXSW EDU," the festival said in a statement. "SXSW will faithfully follow the city's directions."
Austin mayor Steve Adler told a news conference he had declared a local disaster in response to the coronavirus, and had "issued an order that effectively cancels South by Southwest for this year."
The music, tech and film festival was slated to take place March 13-22, although Netflix, Apple, and Amazon had already pulled out.
More than 400,000 people attended the 2019 edition of SXSW, which was headquartered in the Texas capital's convention centre but hosted many events spread throughout the city.
Texas has so far recorded a handful of novel coronavirus cases, and there have been more than 200 confirmed cases in the United States.
Earlier this week Austin said there was "no evidence that closing SXSW or any other gatherings will make the community safer" -- but festival organisers said the situation had "evolved rapidly."
"We understand the gravity of the situation for all the creatives who utilise SXSW to accelerate their careers," organisers said, also acknowledging the hit to small theatres and vendors who rely on the annual business.
"We are exploring options to reschedule the event and are working to provide a virtual SXSW online experience as soon as possible for 2020 participants," SXSW said.
Ultra dropped
The SXSW announcement comes on the heels of Miami authorities saying they were cancelling the Florida beachfront city's annual Ultra electronic dance festival -- which draws in more than 160,000 revelers -- over coronavirus threats.
The March 20 to 22 event was to feature sets from major DJs including Gesaffelstein and Sofi Tukker.
Ultra has also canceled its edition of the festival in Abu Dhabi, which was scheduled for March 5-6.
The epidemic poses a particular challenge for Miami, which relies on tourism especially in March and April, when thousands of young people fly south for spring break.
There have been more than 100,000 confirmed coronavirus infections across 92 territories worldwide, according to AFP's latest toll, and almost 3,500 deaths. Florida has recorded nine cases.
Questions over Coachella
The coronavirus epidemic has seen world markets tumble and dozens of postponed events throughout Asia and Europe.
But the cancellations of SXSW and Ultra mark the first major US music events dropped from the calendar.
Coachella, the marquee music festival set to kick off the weekend of April 10 in the California desert, did not immediately respond to an AFP request for confirmation on whether the event will go ahead.
Each spring hundreds of thousands of festival-goers descend on the grounds of Indio over two three-day weekends.
This year Rage Against The Machine, Frank Ocean and Travis Scott are set to headline.
In late January the Boston Symphony Orchestra announced it would cancel a four-city Asia tour from February 6-16.
New York's Metropolitan Opera issued a 14-day quarantine for performers, artists and other employees returning from China, Iran, South Korea, Japan, Italy and Hong Kong, but all programming was to go on as planned.