The previous Government, before last year's election, promised to create the school in a bid to attract more doctors to the regions.
But Health Minister David Clark this morning announced he had scrapped plans for the school.
National had received bids for the school, but that process would not now proceed, Clark said in a statement.
"No money had been allocated for the school, which would have cost up to a quarter of a billion dollars to set-up and operate," he said.
"By itself, just training more undergraduate doctors is not the answer.
"We need a more comprehensive approach to attract, support and sustain the health professionals that care for rural people."
In August last year, the previous National Government promised to establish the school within the next three years.
"The new School of Rural Medicine will be specifically geared toward meeting the challenges faced by high need and rural areas of the country, and will produce around 60 additional doctors per year," then Minister of Tertiary Education Paul Goldsmith said.
The University of Waikato and the Waikato DHB put forward the idea to the Government and Otago and Auckland Medical Schools also had played a part in its proposal.
But Clark said his Government had other ideas on how to attract more doctors to the regions.
"It's widely known and accepted that we face challenges attracting and retaining health professionals in some of our smaller communities."
He said the Government needed to make the rural health workforce "more sustainable".
The Government's plan includes a number of initiatives, including changing the training funding mix so that a greater proportion of GP training places go to rural trainees.
Clark also said the Government would also put greater investment into professional development for rural primary health care nurses and midwives and would extend rural inter-professional education programmes.
He said these are things the Government could do in the short term, while the Ministry of Health looked at "longer-term solutions" for rural communities.
"I've asked the Ministry of Health to work on addressing the issues of access to health services in rural areas and increasing the availability of a whole range of health practitioners in rural areas."
