The move is the latest blow to the oilsands as companies look to cut costs and capital spending plans following the drop in oil prices.
Shell says that given the preliminary nature of the Pierre River project it expected the impact on jobs would be limited.
The Pierre River application proposed a 200,000 barrel-per-day heavy oil mine.
The company says it already has existing regulatory approval to potentially more than double its oilsands production from the current level of 255,000 bpd.
Shell said Pierre River remains a very long term opportunity and noted that the company will continue to hold the leases and can reapply for regulatory approval.
"Our current focus is on making our heavy oil business as economically and environmentally competitive as possible," said Lorraine Mitchelmore, Shell Canada president and executive vice-president of heavy oil.
The Athabasca Chipewyan First Nation issued a statement welcoming the decision, saying it was "a clear sign that oilsands development is no longer business as usual."
"Now, more than ever, we can see the serious economic, environmental and treaty rights issues in the region are affecting the status quo of business," said the ACFN, which has launched numerous legal challenges of the regulatory process in the region and participated as interveners in the Pierre River project since 2007.
Canada's big oil companies have slashed billions from their capital spending plans in recent months due to the drop in oil prices from more than $100 a barrel last year.
Last month, oilsands giant Cenovus Energy Inc. (TSX:CVE) took $700 million out of its 2015 budget, released at the end of last year.
Canadian Natural Resources Ltd. (TSX:CNQ) reduced its 2015 budget by $2.4 billion, while Suncor Energy Inc. (TSX:SU) cut its workforce by 1,000 and its budget by $1 billion.