Plans to entice film-makers to the South West with a £1m pot of funding have collapsed.
The Film Fund was hoping for a major grant from Objective One
The Cornwall Film Fund has been told it will not receive Objective One status in the future.
It could now be forced to close at the end of the year unless more money is found.
Fund director Colin Rogers has resigned in frustration after the grant for scriptwriters and directors in the county was turned down.
He said he was "sad and bitter" at the decision by the Government Office of the South West.
The fund was set up to encourage new writers, directors and actors in the county, and has already contributed to several films.
It is currently paying for 54 film projects in Cornwall.
Parts of the most recent James Bond film, Die Another Day, were filmed in the county.
Colin Rogers said the decision was a "disgrace"
Mr Rogers said the second phase of Objective One funding would have ensured the industry's future, and a number of jobs in the county.
He described the decision as a disgrace, blaming an "incompetent bureaucratic process".
He said: "It means films that would have been made in Cornwall will not be made here, which means millions of pounds not being spent in the county.
"It also means the talented people in Cornwall who we have worked so hard with over the last two to three years to develop - people we wanted to keep in Cornwall - will have to go and find work elsewhere."
Objective One said it warned from the outset the Cornwall Film Fund might not qualify for more European aid without a revised bid.
But the fund disputes this and insists it will fight for survival.