The Premier League side had an 8.6 million pound bid for the 23-year-old accepted by its Eredivisie counterpart, but after finding that he had suffered a serious knee injury while on international duty in September, the Toffees wanted to restructure the deal with part of the fee based on appearances made for the club.
The Merseysiders were in talks with Twente, and were still keen on taking the midfielder, but the Dutch club's apparent refusal to negotiate the terms of the deal has ended any hope of the deal being resurrected.
Twente chairman Joop Munsterman had previously stated to Dutch journalists that: "[Everton] can come up with any demand they wish but we're not playing along with their demands."
Everton chief executive Robert Elstone told Sky Sports News: "It's a real shame, we were very excited about the prospect of Leroy Fer coming to Goodison and the combination of a lot of hard work. We thought only 24 hours ago we'd got a very talented young Dutch international player coming to Goodison.
"The transfer didn't go smoothly and there were some issues in the end but as our fans would expect we have to put the club first, the club's interests first and the club's finances first. Our track record shows we do that pretty well and we thought long and hard about it and unfortunately it didn't work out.
"Of course, we're still looking there are other options for us, we'll continue to work very very hard on it. We're hopeful, we will work hard and it won't be for a lack of trying. There will be plenty more activity to see if we can succeed with one of those other options."