The deadlock comes as President Donald Trump marks the first anniversary of his inauguration on Saturday.
The main bone of contention is the Democrats' demands for protecting the "Dreamers" - undocumented immigrants who entered the US as children - from deportation.
The White House lashed out at Democratic Senator Chuck Schumer, who held 11th-hour talks with the President before the vote on Friday evening.
Trump's spokeswoman Sarah Sanders declared that the president would not negotiate an immigration deal until Congress agrees to resume normal government spending.
Democrats blame Republicans
Schumer hit back by blaming the Republicans.
"Every American knows the Republican Party controls White House, the Senate, the House -- it is their job to keep the government open. It is their job to work with us to move forward," Schumer told the Senate, after the 50-49 vote.
The last US government shutdown was in 2013.
From midnight Friday, in the absence of an agreed spending plan, federal services began to come to a halt or be scaled back.
Essential services and military activity will continue but many public-sector workers will be sent home without wages and even serving soldiers will not be paid until a deal is reached to reopen the US government.