Majority Leader Harry M. Reid (Nev.) called for the vote as part of a push to pass the bill by week's end, but members of both parties balked, arguing that the Senate has yet to consider key amendments.
The tally was 57 to 42 in favor, three votes shy of the 60 needed to overcome a filibuster.
Two Republicans voted in favor of the measure, Sens. Olympia J. Snowe and Susan Collins, both of Maine. Two Democrats, Maria Cantwell (Wash.) and Russell Feingold (Wis.), opposed it. Democrats also suffered from the absence of Sen. Arlen Specter, who had not returned from his loss Tuesday in a Pennsylvania primary.
Reid changed his vote to "no" at the last moment, a procedural maneuver that allows him to call for another vote, which he said he plans to do Thursday afternoon.
The vote followed nearly three weeks of Senate debate over the bill, a stretch virtually unmarred by the procedural antics that have otherwise turned the chamber into a partisan battleground.
Although two Democrats defected, Reid blasted Republicans for the defeat. "They voted to protect the big banks on Wall Street -- these Wall Street firms who led to the loss of 8 million jobs in America and thousands and thousands of homes in foreclosure," he said.
Likewise, Republicans blamed Democrats for producing a bill they said would give the government far too much power and ultimately harm small Main Street businesses.
Wednesday's vote dealt a blow to Democratic leaders who were hoping to move on to other issues, such as a war-funding package. But the financial measure, which would establish a new consumer watchdog and give the government authority to wind down large, failing firms, is still expected to pass in coming days.
The failed vote represented a rare misstep by Reid. He blamed an unnamed GOP lawmaker for flipping under pressure. "I know how to count votes," the majority leader told reporters late Wednesday. "And I'm not going to be giving any names and verses, but a senator broke his word with me."
That senator appeared to be Scott Brown (R-Mass.), who said in a statement that he is concerned that the legislation would harm insurance companies and certain banks in his state. "I cannot in good conscience vote to end debate on a flawed bill," he said. But he added, "My vote today is not a vote against financial regulatory reform. I believe we need to enact measures that will prevent another catastrophic collapse of our financial system."
Lawmakers on both sides of the aisle have shown flashes of anger recently as they struggled to get amendments considered on the Senate floor. More than 375 proposed amendments to the bill have been filed, but far fewer have received a vote.