Magpies manager Alan Pardew was keen to bolster his midfield options ahead of Friday's deadline after losing playmaker Cabaye in a £23m deal to Paris St Germain.
Pardew appeared confident of landing the 23-year-old from the Stade Gerland side, but Sky sources revealed earlier that Lyon had rejected a bid from Newcastle.
And now Grenier's agent, Frederic Guerra, has confirmed that his client will remain at the Ligue 1 club.
"It is not easy to say no to a big club like Newcastle but Clement is finally decided to stay in Lyon," Guerra told Le 10 Sport.
"Clement would have arrived at Newcastle - not as Clement Grenier but as Yohan Cabaye's replacement.
"I have the upmost respect for a player of Cabaye's quality. But who deserves to have that tag?
"As his agent I ask is he worth half the price of Cabaye?
"For all those reasons it has led us to decline the offer from Newcastle.
"The conditions of the deal did not seem fair."