With the backing of municipal officials, electricity producer Repower wanted to build the plant in La Punt Chamues-ch.
However in a vote on Monday night, citizens voted 74 to 64 against the project, the SDA news agency reported on Tuesday.
They cast ballots after a long debate involving proponents and detractors, including environmental groups and the regional association for the protection of birds.
The hydro plant was earmarked for the Val Chamura, a small valley connecting with the Engadine.
But it turns out the location is home to a pair of bearded vultures, who count among the most prolific breeders of their species in the Alps.
Environmentalists argued that the plant would have threatened the birds’ habitat, as well as the natural environment and countryside of the valley.