The interview process is a two-way street. The candidate is interviewing the company just as much as the organisation is interviewing her. Although unusual, it is not uncommon for the applicant to decide in the first interview that the job is not what it seemed initially. Often, the feeling is mutual, and the interviewing process ends there. But occasionally the company is still interested when the candidate is not. If so, you need to decide how best to gracefully decline a second interview without damaging your reputation.
Discuss the reasons you are declining the interview with a trusted friend or family member to be sure you are turning down the job for the right reasons. This is more important if you are unsure about the decision, or if you are basing it on your impression of the recruiting process. Sometimes it's hard to tell how many of the recruitment mistakes could be related to your recruiter, who may not even be a company employee.
Contact the employer promptly by telephone and ask to speak directly with the hiring manager. You should be able to find contact information in your interview materials, but if you are unable to reach him or his voicemail, contact human resources and deliver the message to an HR representative instead.
Begin the conversation by thanking the employer for the chance to interview. Next, inform the hiring manager that you don't want to continue further in the interview process. Explain that you wanted him to know as soon as possible to minimise the disruption to the process.
Plan what you will say if pressed for a reason by the hiring manager. If there is a specific reason -- and you feel you can share it without compromising your future career -- provide the details. If not, don't lie or be evasive, but explain that you don't think the job would be a good fit, or you had a misconception about what the job actually entailed. Mention that you didn't want to mislead the company or waste everybody's time by continuing in the process.
Follow up the phone conversation with a professional thank you note or letter. Begin with a brief recap of the phone conversation, then thank the employer again for the opportunity. Mention that you look forward to working with the hiring manager in the future, if this is applicable.
Don't agree to the interview with plans of pulling out at a later time, or worse, attend the interview for "practice." This is ethically unsavory and disrespectful of the interviewer's time.
Don't be tempted to lie and say you have another offer -- the company could find out you are still interviewing and this would be very damaging to your reputation. Similarly, don't avoid the issue and hope the problem goes away. The longer you delay, the more likely you are to be denying an interview opportunity for someone else.