The project would have been the first of its kind in France, though similar sites have been set up in other European countries including Germany, Spain and The Netherlands.
The site, planned for near the Gare du Nord train station in Paris, would have allowed users to inject illegal drugs under supervision.
Backed by the Socialist government and the Socialist-run Paris municipal government, the site was aimed at providing better monitoring and support to drug addicts.
The decision will come as a blow to deputy mayor Anne Hidalgo, who had hoped to have the project underway ahead of municipal elections next April in which she is hoping to win the mayor's seat.
Thierry Vidor, a member of a coalition of groups opposed to the project, hailed the decision, saying the plan was "the first step toward the decriminalisation of drugs" and a form of "assisted suicide".