The measure sponsored by Republican Sen. Mike Bell of Riceville was pulled from the Senate Judiciary Committee.
Under the measure, a person or group wouldn't have to provide services for a domestic partnership or marriage not recognized by the state if doing so would violate their religious beliefs. Tennessee does not recognize same-sex marriages.
Bell had said he wanted to protect shop owners in Tennessee, noting that those in other states have been sued for refusing to do business.
But on Tuesday, he said he had talked with legal experts and believes there are current state protections that address his concerns.
"I'm convinced that current Tennessee law protects our business owners from the type of lawsuit harassment we've seen in other states," he said.
Opponents of the measure say it's intended to target gay, lesbian and transgender couples and is discriminatory.
"What was happening here was the effort to codify discrimination; to actually say that individuals could use their religion to discriminate, and that was not acceptable," said Hedy Weinberg, executive director of the American Civil Liberties Union of Tennessee. "Religion should not be used as a reason to discriminate."
The bill was proposed in the wake of recent court rulings in other states striking down bans on same-sex marriage.
Supporters of the measure believe Tennessee's ban will be overturned eventually, and that the bill would protect the religious beliefs of business owners.