The Keith Allen directed documentary about the deaths of Diana and her boyfriend Dodi Al Fayed in a Paris car crash in 1997 claims the royal was murdered in an establishment plot involving her father-in-law Prince Philip.
The 2.5 million pound film had been funded by Dodi's father Mohamed Al Fayed, who has always claimed the deaths were not an accident.
But the film will not be released after producers failed to secure insurance to protect distributors against legal action, reported Daily Mail.
Lawyers had warned there are 87 contentious allegations that would have to be cut before a British screening and although there were plans to release it in the US in August to coincide with the 15th anniversary of the deaths, the insurance was needed to protect the European offices of the distributors.
"'Unlawful Killing' has been sold all around the world. But there was a specific form of insurance needed by the US distributors to cover them for their French and UK offices. This proved impossible to secure. The film has been withdrawn in perpetuity," said a spokesman for the movie - which was screened at both the Cannes Film Festival in France and the Galway Film Festival in Ireland in 2011.
Meanwhile, actress Naomi Watts is currently filming "Caught In Flight", which sees her portray the late princess in the final few years of her life.