Wanakafest Trust chairwoman Janice Hughes said although the trust had decided to cancel this year's festival, plans were under way for a "bigger and better" event in 2009.
The festival, which has been billed as the event "where locals come out to play", celebrated its 20th anniversary last year.
Its largest and most popular activity - the annual street parade - involved local residents and businesses, and drew hundreds of spectators.
Having to make the decision to can the festival was a tough choice for the trustees and the committee knew people would be disappointed, Mrs Hughes said.
"There's still huge support in the community for Wanakafest, but rather than put on a limited festival we've decided it's better to take a year off and concentrate on staging a fantastic event in 2009."
Wanakafest organisers are still planning to hold two events as fund-raisers this year.
One was the popular Passion for Fashion Show, which would put funds into the coffers for next years festival, she said.
The charitable trust was left $10,000 out of pocket when lakefront watering hole Shooters Bar failed to front up with their promised sponsorship in 2006.
Shooters has since changed hands.
In 2006, it was owned by the New Zealand Hospitality Group Ltd - directed by Mike Cates, of Wanaka, and Ricky Quirk, of Christchurch.
The company found itself in financial strife and subsequently sold 27 bars around the country.
Mrs Hughes said the $10,000 loss was a "huge chunk" of money for a charitable trust to lose.
"Unfortunate circumstances" surrounded the missed sponsorship but the Wanakafest trust had moved on and didn't want to focus on negatives, she said.
New sponsors had come on board, a festival manager had been appointed for 2009, and the new trustees were committed to next year's festival.
