The North Yorkshire Moors Railway, which is a charity, said it was a "very difficult decision" but the board was unanimous.
For the last 12 years, its quaint station at Levisham has been transformed into "Le Visham", a German-occupied town in northern France as part of a larger re-enactment weekend also involving Allied forces.
But negative coverage of last year's event led the railway to withdraw their invitation.
In a statement, it said: "We understand why re-enactors are upset and are sorry that after so many years of working together we've been forced to make this very difficult decision.
"As a registered charity, the North Yorkshire Moors Railway exists to deliver benefits to the public at large through the preservation and operation of its heritage railway."
It said it needed to protect its family image, adding: "With this in mind, as we plan for this year's Railway In Wartime event, we had to consider last year's national media articles negatively portraying Levisham's German wartime re-enactment.
"As a public charity we cannot ignore the media's portrayal and so it is with considerable regret the unanimous decision was that the invitation to the re-enactment group, who have provided loyal support at Levisham for many years, would be withdrawn."
Re-enactor Neil Robertson has designed scenarios each year with the aim of educating the public.
He strongly denied re-enactors sympathised with any Nazi cause.
In a statement, he said: "Both the re-enactment community and the station volunteers are saddened by the board's decision, but respect it."
Regarding negative coverage of last year's event, he said the press was allowed to exercise "power without responsibility".
Mr Robertson added: "At Levisham, we have had 12 wonderful years together working as a team with the station staff to provide some of the most unique interactive displays ever seen at any show.
"This has helped make the Levisham display probably the most successful preserved railway display in Europe and lauded around the world.
"We would like to thank the thousands of public we have entertained and (hopefully) educated over the years and hope you all continue to support the show and contribute to its continued success."