The supermarket chain had applied to build the store on a site two miles outside of the town, drawing anger from residents and retailers who claimed it would destroy local businesses and the ambience of Holmfirth.
Residents backed their local retailers against Tesco, with almost 1,200 signing a petition. Tesco representatives were heckled at a planning meeting.
Holmfirth resident Margaret Dale was one of the staunchest protesters against the new development, and was delighted with the result.
"This just proves that people's views matter. In every aspect that development in that location at that size is inappropriate for a town such as Holmfirth."
Tesco corporate affairs manager Jennifer Duncan said the retail giant might still re-apply to set up a store in the town.
Dale responded: "If Tesco comes back we will be ready."