The Scots-born MP had been forced out of frontline politics by a scandal involving the role of his former unofficial adviser and good friend in 2011
Mr Fox said he had been "honoured" to have been considered by David Cameron for a post in the reshuffle.
However, the ex-minister said he would be remaining on the back benches.
He said: "I was honoured to be offered a post as Minister of State in the Foreign Office. I have turned it down.
"The issues that matter most to me and my constituents in North Somerset are the economy, immigration and Europe.
"I do not want to be distracted from what needs to be said on these matters at such an important time politically and look forward to discussing them from the backbenches in the lead-up to the General Election."
The decision means the Euro-sceptic who was once viewed as a possible successor to David Cameron, remains free to speak out about the EU. In 2012, he called on Britain to consider leaving the EU, saying there was "simmering resentment" among voters that they were duped into voting for a political union in 1975 when all they wanted was an economic community.
Mr Fox's cabinet career ended when he became dogged by his links to fellow Scot Adam Werrity.
Despite having no security clearance and not being employed by the Ministry of Defence, his friend and businessman took part in meetings with the then Defence Secretary.
Mr Fox apologised for allowing the lines to be blurred between his friendship with Mr Werrity and his professional life. An investigation found he had committed a clear breach of the Ministerial Code.