"It was known (that he might have to go home), obviously it depended on when the baby was going to be born but he felt that he should be there for the birth and his wife is expected to have the baby in the next couple of days."
Wallace's absence leaves Ireland head coach Declan Kidney with just four recognised back rowers to choose from for this weekend's clash with the Wallabies.
Shane Jennings, Niall Ronan and the uncapped duo of Chris Henry and Rhys Ruddock are the options, while Mick O'Driscoll and Dan Tuohy can also operate in the back row.
Wallace's withdrawal unfortunately comes on the back of Jamie Heaslip's suspension and John Muldoon's broken arm injury against New Zealand.
In all, Ireland will be without eight back row players for the final match of the tour, with Stephen Ferris, Denis Leamy, Kevin McLaughlin, Sean O'Brien and Donnacha Ryan also on the injury list.
Jennings, Ronan, Henry and Ruddock all saw action against New Zealand Maori last Friday and acquitted themselves well, linking well as a unit. More of the same will certainly be required against Rocky Elsom and company.
Commenting on the injury-hit back row division, backs coach Alan Gaffney said: "It's unbelievable. I've never seen anything like it. Then you go to the locks - Paulie (O'Connell), Leo (Cullen), use Donnacha (Ryan) as a lock. It's frightening actually.
"But we keep learning. I mean (John) Muldoon stepped up to the plate, didn't he? And he would not have had that opportunity at the start of the year, he was down the pecking order.
"Rhys went well, a 19-year-old first up playing against the Maori. What's going to happen this week?
"There are four back rows left and c'est la vie. Just as long as we don't have an injury at training."
Gaffney remains confident that Ireland can beat his native Australia, especially given the problems they caused Robbie Deans' men in last November's 20-20 draw at Croke Park.
"We've just got to go into the game and give it a crack. That's all we can do," he admitted.
"The more we keep the ball in hand, the more we keep them under pressure. Because I still think we have the ability of attacking them in midfield, as we did at Croke Park.
"When you go back and look at the number of line breaks we made, which was significant, and we didn't finish them off."
Meanwhile, Paul McNaughton confirmed that Gordon D'Arcy missed training on Monday in order to pay a visit to a groin injury expert in Melbourne.
"Gordon didn't train this morning, he's actually down in Melbourne visiting a specialist for his groin. It was nothing to do with any injuries he's got on this tour," he said.
"We had planned this a few weeks back. He went down with the doctor and he'll just be away for the day."
The Ireland team and replacements for the Test at Suncorp Stadium will be announced on Tuesday afternoon (Australian time).