The museum applied for nearly Â£2 million in funding to create a new visitor experience, which could have included being able to drink the town's sulphur water again, and returning the museum to more of its original spa roots.
But Harrogate Borough Council has confirmed that looking at making the sulphur water drinkable is "not a priority" now that the funding has not been granted.
The development plans also looked at introducing new collections, and revealing more of the glass in the 1913 extension to the building. But the Heritage Lottery Fund has rejected the museum's first stage of their application, which set out how an initial Â£155,400 would be spent.
Head of the Heritage Lottery Fund for Yorkshire and Humber, David Renwick, said: “We know this is very disappointing news for Harrogate Borough Council. Unfortunately, we now have a high level of competition for grants at every stage of the grant application process and we are unable to support all the applications we receive.
“We continue to recognise the heritage importance of the Royal Pump Room and remain open to working with them to explore possible next steps.”
Harrogate Borough Council's head of culture, tourism and sport, Michael Constantine, said: "It is disappointing, you hope for the best and do what you can to make sure that the project you have is sensible and well-supported by the community, but now it's a case of taking a deep breath and a step back to think about what we can do with the money and the space that we do have."
The museum is keen to become more of a thriving community hub that addresses the hidden needs of the Harrogate district, including loneliness.
Mr Constantine said: "Even though we have been unsuccessful, we are still keen to look at ways of becoming more accessible to the community."