The company had been planning to open its third branch in the Capital on the corner of St John’s Road and Manse Road to replace empty retail units.
But developer Realis will no longer submit proposals for a 21,000sq ft store after Waitrose pulled out.
Supermarket chiefs pointed to a trend towards more frequent shops rather than a “big shop”, the rise of internet shopping and falling food prices.
The supermarket plans had proved controversial with campaigners who claimed the development on one of Edinburgh’s most congested roads should be vetoed because of soaring pollution levels.
A Waitrose spokesman said it was not a decision the company had taken lightly, adding: “Our intention was always to reach agreement with Realis and open a new shop which would add to our existing branches in Scotland.
“We are grateful to Realis and the council’s planners for all their efforts, but following changes in trading conditions across the supermarket sector and shifts in customer shopping patterns, we reviewed our plan and have decided not to progress further at this time.
“We are sorry for any disappointment.”
The decision leaves a question mark over the struggling row of shops which the store would have replaced, and Realis said it would have discussions with the owners about the future of the site.
The decision by Waitrose comes amid a fierce supermarkets price war that has seen the store suffer a 24 per cent fall in operating profits to £237m.
Edinburgh Napier University business commentator Graham Birse said changes in trading conditions meant large supermarkets were “no longer as attractive” as they had been a few years ago.
Professor Leigh Sparks, retail expert at Stirling University, said supermarkets were now more likely to question whether big stores still made sense.
There had been concern from residents about the level of traffic the site would attract, and Edinburgh West Liberal Democrat MP Mike Crockart said: “St John’s Road is busy at the best of times so putting another major supermarket on the site was always going to be problematic.
“I know the community was massively divided on this so it is welcome that uncertainty has been removed at least.”
Friends of the Earth air pollution campaigner Emilia Hanna said the development would have been bad news for “Edinburgh’s most polluted area”. She said: “The community had serious concerns about the effect of these plans on local air quality, traffic congestion and the impact of a supermarket on businesses nearby.”