Multimillion-pound plans to move Lincoln Crown Court out of the castle grounds have been shelved.
The decision now puts proposals for a major tourist development in jeopardy.
The county council had been in talks with HM Courts Service (HMCS) about the proposals which would have seen the building used as a visitor centre.
But HMCS said to build a new court building in the city would not represent good value for money for taxpayers.
An HMCS spokesperson said: "Her Majesty's Courts Service was approached by Lincolnshire County Council and asked to vacate the current crown court at Lincoln in order for the council to create a Magna Carta visitor centre.
"We looked at a number of alternatives including moving the work within Lincolnshire or various options involving moving the work to Nottingham, Grimsby, Peterborough and Huntingdon.
"None of these options was considered achievable or affordable without significant impact on court users and the public."