"No service provider shall offer or charge discriminatory tariffs for data services on the basis of content," ruled the Telecom Regulatory Authority of India.
The body had been investigating whether any online content should be prioritised over others, or offered for free while others were not.
Facebook founder Mark Zuckerberg said he would work to make Free Basics legal.
"While we're disappointed with today's decision," he wrote, external, "I want to personally communicate that we are committed to keep working to break down barriers to connectivity in India and around the world.
"Connecting India is an important goal we won't give up on, because more than a billion people in India don't have access to the internet. We know that connecting them can help lift people out of poverty, create millions of jobs and spread education opportunities."
The World Wide Web Foundation, founded by Sir Tim Berners-Lee, the inventor of the web, welcomed the regulator's decision, external.
"The message is clear: We can't create a two-tier Internet - one for the haves, and one for the have-nots," said programme manager Renata Avila.
"We must connect everyone to the full potential of the open Web.