The event, which was due to run from April 30 to May 4 in the town centre, will not be going ahead, Ludlow Town Council has confirmed.
A spokeswoman said: "It is with deep regret that Ludlow Town Council confirms that due to the restrictions imposed by government and the open plan nature of the town centre site, Ludlow Mayfair will not take place in 2021.
"The council considered the news that theme parks and funfairs can open from the 12 April. However, it concluded that Mill Street, the Market Square and surrounding streets are residential, and they cannot be considered on the same terms as a purpose built theme park or funfair.
"The Mayfair site is a public place, and there are no gates to restrict access or limit numbers. Ludlow Town Council sought advice from Shropshire Council public protection officers, and their advice centred around the key question - can measures be put in place to ensure the Mayfair can be made Covid-19 secure and compliant with government requirements?
"This would require the numbers of people attending to be controlled and their access to the area limited, which unfortunately is not possible in open streets.
"In normal circumstances the Mayfair is a joyful event, and welcomed with open arms by the people of Ludlow and the town council, but unfortunately in the current circumstances, it would not be possible to hold the event legally or safely.
"Ludlow Town Council looks forward to welcoming the Mayfair in 2022."