Stanley said it withdrew the proposal, announced in February, saying pending congressional reforms would eliminate the need to move to the offshore tax haven.
The Stanley plan drew fire from lawmakers, shareholders, labor groups and officials in Connecticut, where it has been headquartered for 159 years.
State Attorney General Richard Blumenthal had filed suit against Stanley to block the move, alleging irregularities in May's shareholder vote on the matter.
Stanley, headquartered since 1843 in New Britain, planned to join a growing number of U.S. firms that have registered their corporate names in Bermuda to lower taxes.
When it proposed the change, the tool producer said the move would save $30 million a year in taxes.
Other U.S. companies that have re-based to Bermuda include Ingersoll-Rand Co. Ltd., Cooper Industries Inc., Tyco International Ltd. and driller Nabors Industries Inc.
"Our ability to compete is being undermined by the U.S. tax code, which is archaic in today's global market, putting U.S. companies that compete globally in an untenable position," said John Trani, chairman and chief executive officer.
"Not only are we disadvantaged against our foreign competitors, but two of our major U.S. competitors, Cooper Industries and Ingersoll-Rand Company, have a significant advantage over Stanley Works because they have already reincorporated," he said.
"We have been asked by the Congressional leadership on both sides of the aisle to support their efforts toward rectifying this situation by enacting legislation that will create a level playing field for companies incorporated in the U.S.
"We have honored their request, and the ball is now in their court. We sincerely hope that Congress will agree to a solution. Ignoring this problem will not make it go away but can only accelerate the trend of fewer U.S. headquartered companies," Trani said.
Stanley also said the decision not to re-incorporate would have no effect on previous earnings guidance.
The company said it still expects third-quarter earnings of 71 to 73 cents a share, an improvement of 15 percent to 18 percent over the 62 cents earned in the third quarter of last year.