Westminster's board of health voted 2-1 to drop the proposal at its regular meeting on Wednesday, a week after rowdy opposition led board members to end a public hearing early.
Board members Ed Simoncini and Peter Munro voted to kill the proposal. Board chairwoman Andrea Crete voted to keep it under consideration.
The board had initially said the ban would help keep a variety of tobacco products from young people, but businesses strongly opposed it.
"The town is not in favour of the proposal, and therefore I am not in favour of the proposal," Simoncini said in making a motion to drop it, according to Fitchburg's Sentinel & Enterprise.
After the motion passed, Simoncini thanked the town's residents for their participation in the process, the newspaper reported.
"You made the difference," he said. "It didn't go as smoothly as we would have liked, but thank you."
Crete told The Boston Globe she was disappointed.
"We could have made Westminster tobacco-free in the sense children would have no exposure to tobacco at the stores," she said.
Last week, she ended the hearing after about 25 minutes when boos and shouts from some among the several hundred people who crowded a school gym began to drown out those registered to speak. Crete and the other board members were escorted out by police, and the crowd dispersed.
Opponents have circulated a petition to recall Simoncini and Munro. Crete is not eligible for recall because she's up for re-election in 2015.
Store owner Brian Vincent, who told the Globe he helped gather recall signatures, has said tobacco products make up more than 5 per cent of his sales and bring customers who buy other items. He feared that business would be lost.
The proposal drew national attention to the central Massachusetts town of 7,700 residents.
Tobacco industry groups called it bad policy. The American Lung Association said Westminster would be the first community in the U.S. to take such sweeping action.
Town resident Vicki Tobin, a mother of three young boys, was among those who supported the ban, last week calling it "a great step in a positive way to promote a healthy town."
But others said it would infringe on personal choice.
"I think people are really angry because they feel this is being shoved down their throats," opponent Joyce McGuire said after last week's hearing.
Crete said she regrets not doing a better job of educating people.
"We didn't want to stop people from smoking in private," she said, "but unfortunately that's the way it came off."