More than 370,000 children from 1,700 primary and special needs schools took part in a nationwide tapestry project on the understanding that it would be displayed in the Dome.
Each school was invited to produce a square metre of canvas that illustrated some aspect of their daily lives, to be put together to create one enormous taestry.
But the project's organisers have now been told there is no room for it. Lizzie Owen, chief executive of the Millennium Tapestry Company, said: "The New Millennium Experience Company gave us every indication that it would get its place in the Dome. Now, after all the incredibly hard work has been done, they have washed their hands of it."
A spokeswoman for the company denied there was any guarantee of the project being featured.