The agreed-upon deal reportedly would have sent forwards Andrew Cogliano, Dustin Penner and defenseman Ladislav Smid to Ottawa.
Heatley had requested a trade from Ottawa, but such a move would require him to waive his no-trade clause for any potential deal to be finalized. Last season, Heatley tallied 39 goals and 33 assists in 82 games. He had back-to-back 50 goal seasons in 2005-06 and 2006-07.
With the deal off, Ottawa is now responsible for a $4 million bonus due to Heatley on July 1.
Penner, 26, has been a disappointment for the Oilers after signing as a free agent from Anaheim two seasons ago. Penner scored 17 goals and 20 assists in 78 games last season.
Cogliano was the Oilers' first-round pick in 2005. He scored 18 goals and 20 assists last season.
Smid, 23, has played three-seasons in the NHL. Last year, he picked up 11 assists in 60 games.