The company said that rescue plans put forward by a government-led taskforce had failed to address "basic economics" and provided a poor business model that neither understood the marketplace in which it operated nor how the proposals would be funded.
It means the Johnnie Walker whisky bottling plant in Kilmarnock will close, with the loss of 700 jobs, and 200 people will be made redundant at the Port Dundas grain distillery in Glasgow.
Diageo’s managing director of global supply, David Gosnell, said: "The taskforce proposal does not address the basic economics of our business, current developments in the marketplace or funding for the suggestions it does advance."
Finance Secretary John Swinney said he was "deeply disappointed" and claimed the taskforce had put together "the strongest arguments and substantive proposals" to retain the jobs.
Des Browne, the Labour MP for the area, said the closure would "ruin families, ruin lives, ruin people’s futures". He said: "I am seeking an early meeting with John Swinney to find out what actually went on in these negotiations and what went wrong."
However, Diageo also announced plans to create 400 jobs with the expansion of the Leven packaging plant in Fife.
The taskforce proposed the closure of the existing Hill Street packaging plant in Kilmarnock and the construction of a new plant on a greenfield site near the town. It also suggested the closure of the Port Dundas grain distillery could be delayed pending a change in market conditions. Diageo said the proposals would "embed inefficiencies" and risk investment elsewhere in Scotland.
Mr Gosnell said: "We examined the alternative proposals thoroughly. They don’t deliver a business model that would be good for either Diageo or Scotland."
Mr Swinney said: "The taskforce will meet shortly to discuss our next steps. Diageo have offered to engage with supporting regeneration activities and we will hold them to that commitment."
Kilmarnock and Loudoun MSP Willie Coffey said the failure to save the jobs was "a devastating blow for an intensely loyal workforce".
However, Iain Gray, the Labour leader, said he was "deeply disappointed that John Swinney has been unable to bring forward a plan capable of convincing Diageo to save these jobs."
Tory leader Annabel Goldie said the government had "to build bridges with the people who made this decision, and ensure that Diageo continues to be a major employer in Scotland".
GMB Scotland secretary Harry Donaldson, is meeting the company today and although Diageo has said the dialogue on the business case is closed, Mr Donaldson said he hoped "to convince them that they need to think again".
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