Bush has sought an overhaul of U.S. immigration laws for years and this bill may have been his last chance for a significant domestic legislative victory before leaving office when his second term ends in a year and a half.
The president was unable to overcome fierce opposition from fellow Republicans who said it was an amnesty and would do little to stem the flow of illegal immigration into the United States.
The bill tied tough border security and workplace enforcement measures to a plan to legalize an estimated 12 million illegal immigrants and create a temporary worker program sought by business groups. It also would have created a new merit-based system for future immigrants.
Lawmakers are unlikely to return to comprehensive immigration reform before next year's presidential election. It is already an issue in the campaign.
The bill was also opposed by some labor unions, who said its temporary worker program would have created create an underclass of cheap laborers. Immigrant groups opposed measures in the bill that limited family migration.