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Muir had been named in the British team for the 800m as well, but has surrendered that spot, meaning Alex Bell gets a late call-up to the team.
Muir is the British record holder over 1500m and that event has historically been her strongest. The Scot finished seventh at the last Olympic Games in Rio and has reached each of the last three World Championship finals in the discipline, including when finishing fourth in London in 2017.
Her performances over the longer distance had made her all-but certain to be selected and so the 28-year-old opted to run the 800m at the British Championships last month with a view to doubling up in Tokyo, but she could only finish third behind teenager Keely Hodgkinson and training partner Jemma Reekie.
Competing in both events would potentially have meant a gruelling schedule of six races in eight days and Muir will now focus solely on the 1500m, the first round of which takes place the day before the 800m final as the competitions overlap.
Bell finished fifth at the British Championships but is ranked fourth in the UK this year - behind Hodgkinson, Muir and Reekie - after running a PB of 1:58.52 in Belfast in May and gets her first Olympic call-up.