© Reuters / Stephanie Keith
Critics of Mr McInnes were urging the department and Immigration Minister David Coleman to ban him from travelling to Australia for a speaking tour next year, concerned about his extreme views and promotion of violence.
The ABC understands Mr McInnes was notified a few weeks ago that the department was likely to block his visa application because he was judged to be of bad character, and the formal window for him to appeal closed on Friday.
Mr McInnes cut ties with the Proud Boys group earlier this month. The group, which Mr McInnes has previously labelled a "gang", describes itself as a men's organisation, committed to upholding "Western chauvinist values".
The FBI designated them as an extremist organisation.
On Thursday, a petition of 81,000 signatures was delivered to Federal Parliament calling on the Government to block Mr McInnes from entering the country.
Lawyer Nyadol Nyuon, who founded the petition, said the Government's decision was a win for free speech.
Comment: Say what??? Since when is preventing someone from airing their opinions a 'win for free speech'?
"To have allowed him to come still I think would have made it seem as if the Government had given tacit approval at the very least to these calls for violence against people you don't agree with as a legitimate form of free speech," she said.
"It's not and it should never be."
Ms Nyuon said Mr McInnes could not possibly have met the character test for entry to Australia.
"I'm happy that women, non-whites, certain members of the LGBTI communities don't have to live in an atmosphere of fear after these individuals are allowed to come in, or from the fear of what that might suggest to them," she said.
Mr McInnes was due to tour the country early next year, alongside UK far-right activist Tommy Robinson.
The ABC understands no visa application has been received for Mr Robinson.
© The DeplorablesGavin and Tommy Robinson were due to tour Australia in February 2019
The Proud Boys list their values as including being against political correctness, racial guilt and racism, while promoting free speech and gun rights.
But they have been widely criticised as promoting violence against people who do not share their views.
In a statement, a spokeswoman for the Department of Home Affairs said all non-citizens entering Australia had to meet character requirements before a visa would be granted.
"For visitors who may hold controversial views, any risk they may pose will be balanced against Australia's well-established freedom of speech and freedom of beliefs, amongst other relevant considerations," she said.
Dvir Abramovich, chairman of Australia's leading civil rights organisation, the Anti-Defamation Commission, issued a statement praising the Government's decision to reject Mr McInnes's application.
"I have no doubt that his visit would have cultivated a disruptive atmosphere of incitement as well as attracting hardcore extremists, and this explosive combination could have resulted in rioting and street fights," Dr Abramovich said.
"This moral decision is a strong affirmation that the noxious rhetoric often spewed by Mr McInnes will never be tolerated in Australia."At a time when anti-Semitism and far-right activism in our nation are on the increase, we should not be providing such individuals with an opportunity to promote their divisive and dangerous agenda which runs counter to our core values."
This is definitely not a win for free speech or common sense.