The drinks giant, which owns brands including Guinness and Smirnoff, had previously planned to invest up to £30m in a stake in Cobra.
The Indian-themed lager currently generates sales of around £55m a year.
However, a Diageo spokesman said last month: "'Diageo confirms that it has reviewed a possible link with Cobra. While a number of benefits for both parties were identified in the proposal, which was discussed, negotiations have now ended. No further comment will be made on the nature of the discussions."
Last week Diageo announced that sales were up by 7% and profits up by 9% in its latest financial results.