Danielle Smith lost the Tory nomination to Carrie Fischer, a town councillor in Okotoks, in the provincial riding of Highwood, south of Calgary.
Smith led eight of her colleagues of the Wildrose party across the floor to join the government last December in a stunning move that created considerable buzz among political watchers.
"This is of course a mixed emotions day for me. I did want to get a mandate to be the PC candidate for Highwood but of course residents felt otherwise," she said in her concession speech.
"I'm grateful for the residents of Highwood for coming out and participating in the process. I think it was an invigorating process. I think it was good for the party."
Smith still believes switching parties was the right thing to do and she has no regrets about crossing the floor four months ago.
"No. Absolutely not. I believe that Jim Prentice is exactly the leader that we need right now. I think it's important for Conservatives to unify under his leadership," said Smith.
Smith's loss happened on the same day that the Wildrose picked former federal Conservative MP Brian Jean as the new leader of the opposition party in a leadership vote.
The Progressive Conservatives did not give a breakdown on the nomination results but say 972 people voted.
Fischer said she understands that the floor crossing did have an impact on the outcome.
"I think it was on the minds of some of the voters but I hope my conversations with them earned their trust and support," said Fischer.
Smith said she has no immediate plans but intends to join her parents on a trip to Mexico in May.
She told reporters earlier this year that she underestimated the amount of public anger that resulted from her decision to abandon the Wildrose Party.
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