McRae made the call on Hill before Collingwood fine-tuned preparations for Saturday's twilight clash at the MCG, and had better news for key forward Brody Mihocek who has been battling a toe injury.
The match committee will meet later on Thursday to decide on veteran Jeremy Howe, who has been sidelined with an adductor issue.
Hill has made just one AFL appearance - as a substitute - in the last three months due to personal reasons.
The 2023 Norm Smith Medallist had ramped up his training in a bid to feature at the pointy end of the season but so far has fallen short.
"Bobby won't play this weekend," McRae said of the exciting small forward.
"It was really difficult - I told him before training ... it was a conversation that was hard for him to hear but it was a reality of right now with his preparation and credit to him he trained really, really well which shows how far he's come in the last little period.
"He's working hard to get back and this is not permanent, but this week he's not available."
McRae said the decision was "based on a lot of little things" both with 25-year-old Hill and the team, and did not rule him out of playing the grand final.
"I'd like to think so, I don't want to take away hope for the young lad and he's progressing towards that," the 2023 premiership coach said.
"I mentioned that to him - keep training well, keep turning up, keep being here, being present, keep getting better every day as we always say.
"There may be a world where that could be true."
While Hill was a tough call, the decision on Mihocek was an easy one for the coach.
"It's hard to keep him out of the team, even the training track, he's out there training really well this week and he's fit and well," McRae said.
Howe's fate will be decided after the match committee view some high-performance figures to assess where the defender is at after being unable to play a full game since round 16.
He trained fully on Thursday.
"We're going to weigh up right now, is he fit to play or fit to perform? That's been our mantra all year based on the lessons learnt last year," McRae said.
A high-performance team will present those numbers in front of us ... and then we just weigh up what's best for the team this week."
