The council voted 2-2 on Tuesday night, upholding the planning commission's rejection of the statue. Mayor John Taylor abstained from voting because he lives in the neighborhood the zoo is located in.
Carolyn Franks, owner of the petting zoo, bought the statue in June to install as an attraction for kids at the petting zoo. It was meant to be the centerpiece of a hands-on fossil dig at the petting zoo.
The replica dinosaur, nicknamed Juan, was placed without city review and permits.
But the Capistrano Historical Alliance Committee objected to the dinosaur statue because it conflicted with the area's historic emphasis.
Franks previously said she had no idea the dinosaur statue would stir up so much debate.
City News Service contributed to this report.