The three-judge bench of the US Court of Appeals for the Ninth Circuit unanimously ruled against the revised travel ban. The court said the executive order signed by Trump "exceeded the scope of the authority delegated to him by Congress" to oversee immigration.
"Immigration, even for the president, is not a one-person show," it said.
But it also said the US government was within its right to review the vetting process for people entering the country.
Since his inauguration on January 20, Trump has struggled to deliver on the promise, describing which he has called for a "total and complete shutdown of Muslims entering the US".
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His administration believes at this time it is difficult to verify people entering the United States from the six countries - Iran, Libya, Somalia, Sudan, Syria and Yemen.
But Trump's critics, who have approached various courts, believe his executive order is targeted against a particular religion. The administration has opposed all such allegations.
The US - under President Trump - has already taken several other steps like asking for the social media profile and account along with past cell phone numbers, if necessary, for those applying for visas to the US.
The White House has previously vowed to challenge these court orders. It believes the president has the constitutional authority to decide who all can enter the country.
Trump first signed the executive order in late January. After the order was blocked in a federal court, his administration came up with a revised version to better stand up to the legal scrutiny.
Last week, Trump tweeted that the revised executive order was a "watered down" version of his original "travel ban." He blamed the Justice Department for not sticking with the "original travel ban."
Today's ruling is the latest in a string of judicial blows to Trump's efforts to prohibit the entry of citizens of Iran, Libya, Somalia, Sudan, Syria and Yemen for 90 days while the US government reviews their screening procedures.