"I have listened carefully to all who have expressed their concerns," WHO head Tedros Adhanom Ghebreyesus said in a statement.
He had previously praised Zimbabwe for its commitment to public health.
But critics pointed out that Zimbabwe's healthcare system had collapsed in recent years.
During the first 20 years of his 37-year rule, Mr Mugabe widely expanded health care, but the system has badly been affected by the collapse of the Zimbabwean economy since 2000.
Staff often go without pay, medicines are in short supply, and Mr Mugabe, who has outlived the average life expectancy in his country by three decades, travels abroad for medical treatment.
Mr Tedros said he had consulted with the Zimbabwean government and decided that rescinding Mr Mugabe's position was "in the best interests of" the WHO.
He said he remained "firmly committed to working with all countries and their leaders" to build universal health care.
Mr Tedros, elected in May under the slogan "let's prove the impossible is possible" had said he hoped Mr Mugabe would use his goodwill ambassador role to "influence his peers in the region".
But the appointment was met by a wave of surprise and condemnation. The UK government, the Canadian prime minister, the Wellcome Trust, the NCD Alliance, UN Watch, the World Heart Federation, Action Against Smoking and Zimbabwean lawyers and social media users were among those who criticised the decision.
The BBC's Andrew Harding in Johannesburg reports that Mr Mugabe's supporters are likely to see this episode as Western meddling in Africa.
Questions follow PR disaster
Imogen Foulkes, BBC News, Geneva
Following the storm of criticism from human rights groups and expressions of dismay from many member states, the WHO had little choice but to cancel its plan to make Robert Mugabe a goodwill ambassador.
The about-face will raise questions over the leadership of the WHO's new director general Dr Tedros Adhanom Ghebreyesus.
The decision to honour Mr Mugabe is likely to have been taken several weeks ago, and at no point did Mr Tedros seem aware that appointing as goodwill ambassador a man who has been accused of human rights abuses, and of neglecting to the point of collapse his own country's health service, might be controversial.
The WHO was supposed to be embarking on a new era of reform. Instead, it is mired in a public relations disaster.