The bill would have required social networking companies to remove personal information from sites when asked.
Also under the measure, parents would be allowed to edit their children's posted information to exclude home addresses and phone numbers.
The bill was strongly opposed by Facebook, Google, Twitter, Yahoo, Skype and online matchmaking sites.
Companies opposing the measure said in a May 16 letter that the bill would violate constitutional free speech protections. They argued it would undermine consumers' ability to make informed choices about the use of their personal information "while doing significant damage to California's vibrant Internet commerce industry at a time when the state can least afford it."
Most sites now let users reveal or conceal personal information in the context of what they are doing at any particular time, the companies said. The proposed bill would force them to make blanket privacy decisions before they ever have used a service.
Opponents in the Senate echoed the companies' economic concerns as the state faces high unemployment and declining tax revenues that have led to lingering $10 billion budget deficit.
The bill was supported by law enforcement and consumer groups. Similar bills are being discussed in Congress and other states.
The Associated Press contributed to this report.