The Australian Olympic Committee (AOC) said the 35-year-old snowboard cross specialist had suffered a serious fall at training on Monday and reported worsening neck pain on Tuesday.
A scan at the Olympic Polyclinic identified two stable neck fractures, and Bolton had been transferred to a Milan hospital for further imaging and assessment, the AOC said in a statement.
Bolton took silver in the mixed team snowboard cross with Mia Clift at last year's world championships in Engadin, Switzerland.
The AOC said it had enacted the Late Athlete Replacement option, bringing Olympic debutant James Johnstone onto the team alongside Adam Lambert and Jarryd Hughes for the men’s snowboard cross qualifying on Thursday.
Australia's snowboard halfpipe entrant Misaki Vaughan was also ruled out of the Olympics after suffering a head injury during training on Monday and failing a head impact assessment on Tuesday, the AOC added.
No athlete will replace Vaughan, with Australia to be represented by Amelie Haskell and Emily Arthur in the women's halfpipe qualifying later on Wednesday.