Developer Cyclamax was refused permission to build the plant at Sheepbridge, Chesterfield, which would have burned up to 75,000 tonnes of rubbish each year.
Ten per cent would have been classed as "harmful".
Opponents told an epic five-hour meeting of Derbyshire County Council's planning board it would have sent emissions including dioxins across an area of more than 10 miles - covering much of north east Derbyshire and south Sheffield.
There were 15,000 objections to the scheme, and just four comments in favour - with many people fearing the impact on health.
Committee chairman Coun Martin Ford said the development was "the most objected-to application this council has dealt with for many years".
Councillors were given a standing ovation as they voted against by eight to one.
They rejected the scheme because of "unsafe" road access, the impact on the local economy - as businesses in the area said they would have difficulty attracting staff to work next to an incinerator - and proposed removal of trees which had preservation orders.
Monmouthshire-based Cyclamax, which said the land had been chosen out of 400 potential sites because it was in an industrial area and well-screened, is now considering whether to appeal - which would lead to a public inquiry.
The company said the scheme would have created 41 jobs and produced electricity from the exhaust gases.
Around 400 protesters crammed into the council chamber in Matlock, some carrying banners, others wearing badges, and one even wearing a wolf costume.
There cries of "shame on you" as the council's head of planning services, Rob Mirfin, recommended the scheme for approval.
He said: "The Health Protection Authority has assessed the potential health risk to be small. Any potential risk of cancer is exceedingly small - probably not measurable."
But councillors rejected the plans after hearing speeches from 25 objectors plus the views of more who joined in a heated debate.
Speaking out against were Chesterfield Labour MP Toby Perkins, councillors, campaign groups Chesterfield and Dronfield Against Incineration, members of the public and business owners.