"Compliance is not a polite suggestion. It is a requirement," he said during a news conference.
Murphy cited the spike in other states as well as reports in New Jersey of people not correctly wearing or failing to wear face masks as well as maintain distance.
"Unfortunately the national scene compounded by instances of knucklehead behavior here at home are requiring us to hit pause on the restart of indoor dining for the foreseeable future," he said.
New Jersey has been slowly reopening, and on Monday indoor shopping malls were cleared to start business again.
Indoor dining was to begin again on Thursday at 25% capacity. Casinos are also set to reopen Thursday, also at 25% capacity. Murphy said that can go forward.
New Jersey has been among the hardest-hit states, which Murphy hinted at when rescinding the restaurant reopening.
"None of us, none of us want to go back to that hell. We've worked too hard to get here," he said.
New Jersey reported 156 new cases overnight for a total of 171,000, Murphy said. There were 18 new confirmed deaths since Sunday, for a total of 13,138 confirmed COVID-19-related deaths. There are 1,854 suspected coronavirus-linked deaths.
The delay in reopening comes as the state progresses through Stage 2, of three, of restarting. So far, indoor retail has reopened, along with salons, barbershops and massage parlors.
Also set to reopen Thursday are amusement and water parks, playgrounds, museums, aquariums and libraries.
For most people, the virus causes mild or moderate symptoms. Older adults and people with existing health problems are at higher risk of more severe illness or death.