Mayor Martin Winter confirmed that plans for a £22 million academy on the site of Northcliffe School, Conisbrough, had been axed due to local opposition.
Mr Winter told the Free Press: "As mayor, I sometimes have to make difficult decisions - and this is one of them.
"I know that currently we are not doing our best by the learners of Northcliffe. We all want the attainment levels to be much higher.
"We produced what seemed to be a solution with the Emmanuel Schools' Foundation sponsoring an academy, as they have in Thorne.
"But a significant number of the local community, the teachers and the pupils have spoken loud and clear. They do not want it for their children."
Members of the Conisbrough and Denaby Parents Action Group, who organised a 200-strong protest march to call for Northcliffe to remain under LEA control, were delighted.
"I'm over the moon. If the school had been taken out of local authority control, we would have lost the opportunity to be involved in the decisions that affect our children's education.Thankfully we will still have this chance and are not prepared to lose it again," said Tracy Morton.
But foundation chairman Sir Peter Vardy said the decision was not a victory for the campaigners.
"Far from celebrating, they should be reflecting on the opportunity they have denied their children for an education of the very highest standard in state-of-the-art facilities."
The foundation would have paid £2 million towards a new school in return for control over its day-to-day running. Sixty per cent of parents supported the scheme with 40 per cent against. Opponents feared that the foundation was being given too much control and were particularly concerned that its Christian ethos would be imposed on pupils.
Yesterday's decision leaves a question mark hanging over the future of Northcliffe, which was placed in special measures earlier this year following a damning report by Ofsted inspectors.
Mr Winter said: "I am still determined that educational standards at Northcliffe will improve, as they are doing elsewhere in Doncaster.
"There will be positive changes in education and learning provided for the children of Conisbrough and Denaby and I will continue to work with the DfES to identify the right solution."
The Trinity Academy at Thorne, also sponsored by the foundation, is unaffected and is still on target to open in September 2005.