Daniels, a second-term governor who is popular with fiscal conservatives, announced in an e-mail to supporters early Sunday that the "wishes of my family" drove his decision not to seek the GOP nomination.
"If you feel that this was a non-courageous or unpatriotic decision, I understand and will not attempt to persuade you otherwise. I only hope that you will accept my sincerity in the judgment I reached," Daniels wrote.
One immediate beneficiary was Romney, who lost a competitor who could have taken advantage of decades-long connections among Republican leaders to raise substantial sums of money. Romney alone among the confirmed candidates has an extensive fund-raising base and millions of his own money to spend on a race. Another Republican who might have challenged Romney on the money front, Mississippi Gov. Haley Barbour, earlier took himself out of contention.
"This nomination is now Romney's to lose," said Scott Reed, a Republican strategist who had been advising Barbour.
Daniels' decision also opens a vacuum in the competition to be the anti-Romney, a position that Pawlenty sought to secure for himself by echoing Daniels' economic positions in a statement Sunday congratulating Daniels on his decision.
Romney has worked to overcome opposition for multiple reasons, among them his support of the Massachusetts health care law that is similar to the new national law despised by GOP activists.
Advisers to Pawlenty - who released a video Sunday night announcing his entry into the race and has been courting party loyalists for months but has yet to draw much support among voters - saw opportunity in Daniels' news.
"Gov. Pawlenty and Gov. Daniels would have been competing for much of the same space, both geographically and ideologically," said former Rep. Vin Weber of Minnesota, who is advising Pawlenty.
Gingrich, appearing on CBS's Face the Nation on Sunday to buttress his campaign after a stumbling start, said Daniels would have been one of the "front-runners from Day One" had he run. Gingrich also sought to undo damage he did one week earlier, when he called the House GOP's plan for Medicare "right-wing social engineering" and seemed to endorse a health insurance mandate, which has been a drag on Romney's candidacy.
Concern among Republicans about the field of candidates has been a constant in this election cycle, and it surfaced Sunday as well.
"We have about two million activists across the country, and frankly, we're disappointed," former House Majority Leader Dick Armey told CNN on Sunday. "Now, obviously, we have to start looking."
He offered Rep. Paul Ryan of Wisconsin, author of the Medicare plan disparaged by Gingrich, as an alternative, but Ryan told NBC's David Gregory on Meet the Press that he, too, would stay out of the race.
"I'm not running for president. You never know what opportunities present themselves way down the road. I'm not talking about [running] right now," Ryan said.
Time is running short even if a favored candidate should emerge.
No Republican in the modern era has started forming a presidential campaign this late in the election cycle and gone on to win the nomination.
A top Republican Party official, who asked not to be identified because his position requires neutrality, said Daniels' decision would increase pressure on Gov. Rick Perry of Texas and Gov. Christie of New Jersey to give the race another look. Both have said they were not interested in running.
That pressure could also affect timing for the three candidates still openly considering the race. Bachmann, who has made repeated trips to key early states, has said she will make her plans known soon.
Huntsman made multiple well-publicized stops last week in New Hampshire, site of the first primary. Palin said last week she still has "fire in the belly," but she appears far from ready to enter the race.
Some veterans of primary seasons suggested that much of the concern about the field would ebb as the primaries and caucuses near.
"You're always waiting for the next great candidate, only to discover that the next great candidate is already there," said Fred Malek, a longtime Republican Party fund-raiser. "There may be some Republicans who are waiting for a white knight to emerge. I think it's going to be a long wait. I think the field is largely complete, and I think the field is very good."