It would have been the first time that the DA had fielded a black presidential candidate in an election, providing a shield against persistent charges they are a vessel for white interests.
Ramphele - the partner of slain South African hero Steve Biko - would have faced beleaguered incumbent President Jacob Zuma.
But the deal fell apart at a meeting yesterday aimed at finalising terms of the agreement announced last Tuesday, DA leader Helen Zille said in a statement.
"This about-turn will come as a disappointment to the many South Africans who were inspired by what could have been a historic partnership," Zille added.
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Ramphele launched her own political platform, Agang, a year ago, but in a crowded political field the party has struggled to garner funds and votes.
In Ramphele, the DA appeared to believe it had found a leader who could nudge the dial in its favour, or at least neutralise the African National Congress's attack and tap into deep voter unease.
Ramphele last week described her move as "a historic moment".
"We are going to take away the excuse of race and challenge the ANC to be judged on its performance," she said at the time.
"We are taking away that race card and putting it in the dustbin."
But the ANC alleged that the DA was using her because of the colour of her skin.
Zille defended her party's unusual choice.
"It is rare indeed for a political party to offer the position of presidential candidate to a leader from another party, but we believed this move would be in the best interests of South Africa," she said.