The short-sided format was added to the Olympic schedule last week, along with mixed relay races on the track and in the pool and BMX Freestyle.
Though happy with the move, it does not mean the Cleveland Cavaliers star will represent Team USA in Tokyo.
"I think it's great for basketball," James is quoted by ESPN. "For us to be able to add another category to the Olympics, another basketball category, I think it's pretty great.
"I'm not very good in a three-on-three thing, I'm more of a five-on-five guy.
"I stay out of the one-on-one matchups during our practice, the two-on-twos and the three-on-threes. I probably won't be a part of the three-on-three matchup that it has to offer."
James already has three Olympic medals at home — a bronze from 2004 and gold medals from 2008 and 2012. With James out, J.R. Smith believes fellow Cavs teammates Kyrie Irving and Kyle Korver would be good fits for the new format.
"Kyrie for sure," Smith said. "He's probably the best one-on-one player already. And Kyle [Korver] would be a really good three-on-three player because he moves without the ball and he can catch-and-shoot the [expletive] out of it."