Johnson will play Dante "Tex" Jill in the film. In real life, she was a crime boss who, though a woman, was identified as a man.
The move angered many trans actors and queer activists, who argued that there was an entire roster of trans male actors to play the role instead of her.
Scarlett Johansson will no longer play a trans male character in the upcoming film Rub and Tug after receiving widespread backlash for the casting decision.
“In light of recent ethical questions raised surrounding my casting as Dante 'Tex' Gill, I have decided to respectfully withdraw my participation in the project,” the actor said in a statement provided to LGBT+ focusing news outlet Out Magazine.
“Our cultural understanding of transgender people continues to advance, and I've learned a lot from the community since making my first statement about my casting and realise it was insensitive.
Jen Richards, a transgender writer and actor, celebrated Ms Johansson's decision to withdraw from the film in “the spirit of generosity”.
“I am going to take Scarlett Johansson at her word that she listened to feedback, realised that despite her intentions this was going to cause harm, and made the right decision to step down,” she wrote in a tweet. “Well done.”
“I have great admiration and love for the trans community and am grateful that the conversation regarding inclusivity in Hollywood continues,” Ms Johansson said.
”While I would have loved the opportunity to bring Dante's story and transition to life, I understand why many feel he should be portrayed by a transgender person, and I am thankful that this casting debate, albeit controversial, has sparked a larger conversation about diversity and representation in film.”