Greens senator Sarah Hanson-Young's bill amended the Marriage Act, so it no longer discriminated on the basis of sexual orientation or gender identity.
Senator Hanson-Young says more than 60 per cent of Australians want to see same-sex marriage legalised.
But that figure wasn't reflected in the Senate's vote, with the bill going down 45 to five.
But with the Mardi Gras approaching, members of the Gay and Lesbian community are still hopeful Australia's policies on the issue can change.
Andrew Williamson and his partner Mindigas have been together for 5 years.
They firmly believe in marriage as an institution and want the same rights as their heterosexual friends.
"If you love someone, care for them, are totally committed to them, then marriage is the ultimate expression we have to symbolise that relationship," Mr Williamson told SBS.
As the gay and lesbian Mardis Gras approaches, the NSW government chose this week to announce that it plans to allow gay couples to register their partnerships in the future.
The move brings NSW into line with Victoria Tasmania and the ACT.
Gay groups have welcomed the move but they say it doesn't go far enough.
"We believe marriage should be the ultimate goal with civil unions and relationship registries in addition to that to allow other people to choose what they'd like but full marriage equality is what we're aiming for," an actvist said.
Andrew Williamson agrees. He says relationship registers are second rate and may actually encourage discrimination.
"That sort of stigmatisation or classing homosexual relationships as being different from heterosexual relationships causes people to regard homosexuals as different from heterosexuals and that is not a good thing".
Sydney couple Vicky Harding and Jackie Braw have been together for eight years.
Their issue is not with Australia's marriage laws but with current legislation concerning adoption.
Vicky wants Jackie to be able to adopt her daughter Brenna but the law here in NSW prevents it.
"All these fantastic things we've achieved in Australia and yet we still have these ridiculous bits of discrimination lying around and yet we're not willing to clean that up. It just doesn't make sense," she said.
NSW had pledged to change the law but backed down in the face of opposition from groups which say only heterosexuals should have the right to adopt.
It's an argument 13-year-old Brenna does not understand
"That's just ridiculous. There is no proper family. This is as good a family as any. Better. Sure," he said.
For the time being the majority of Australia's politicians beg to differ.
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