The £72 million masterplan envisaged selling off part of the site at Corstorphine to make way for 100 homes. But the council planning committee decided by seven votes to six not to earmark the land for development in the local plan.
The Royal Zoological Society of Scotland, which runs the zoo, reacted with disappointment. "The planning committee decision is a rejection of all that we stand for," said trustees chairman Henry Elliot.
"We have devoted several years to the detailed analysis of our site and planning for its redevelopment. We will be looking at whether we can find a way in which to reverse this ill-considered planning decision."
The society could submit an application for the housing development or wait to argue its case at a public inquiry looking into the local plan next year.
More than 220 objections were lodged to the rezoning proposal. Local people argued that it represented over- development and the new homes would increase the level of traffic congestion.
Planning convener Jim Lowrie, who backed the plans and whose vote would have been crucial, was away when the decision was taken.
The controversy has prompted Edinburgh to review councillors' attendance at important meetings. Leader Jenny Dawe explained: "It is important that committee conveners can attend meetings."