The vote was 55-45, short of the 60 necessary to move ahead on the legislation.
The Pentagon's leadership strongly opposed the change, arguing that officers should have more responsibility, not less, for the conduct of the men and women they lead.
Sponsored by Sen. Kirsten Gillibrand (D-N.Y.), supporters insisted that far-reaching changes in the Uniform Code of Military Justice were necessary to curb the scourge of rapes and sexual assaults.
In the final moments of debate, Sen. Claire McCaskill (D-Mo.), who opposed the bill, reminded senators that 35 major reforms have been instituted to address military sexual assaults.
That did not sit well with Gillibrand, who retorted: "This is not an opportunity to congratulate ourselves on the great work we've done."
The Associated Press and ABC News contributed to this report.