The 178-year-old operator had been desperately seeking Â£200 million ($250 million, 227 million euros) from private investors to save it from collapse.
“Despite considerable efforts, those discussions have not resulted in agreement between the company´s stakeholders and proposed new money providers,” Thomas Cook said in a statement.
“The company´s board has therefore concluded that it had no choice but to take steps to enter into compulsory liquidation with immediate effect.”
The government said it had hired planes to fly home an estimated 150,000 holidaymakers to the UK, in an operation starting on Monday.
“Following the collapse of Thomas Cook and the cancellation of all its flights, Transport Secretary Grant Shapps has announced that the government and UK Civil Aviation Authority has hired dozens of charter planes to fly customers home free of charge,” a separate statement said, describing it as the largest repatriation in peacetime history.
“All customers currently abroad with Thomas Cook who are booked to return to the UK over the next two weeks will be brought home as close as possible to their booked return date.”
Thomas Cook chief executive Peter Fankhauser called it a “deeply sad day”.
“It is a matter of profound regret to me and the rest of the board that we were not successful,” he said.
“This marks a deeply sad day for the company which pioneered package holidays and made travel possible for millions of people around the world,” he added in the group´s statement.
The firm´s creditors held a marathon meeting on Sunday to try and work out a deal, followed by a meeting of the board of directors.
Reports said a collapse of the group would mean the repatriation of 600,000 tourists, including around 150,000 seeking government help returning to the UK.
Two years ago, the collapse of Monarch Airlines prompted the British government to take emergency action to return 110,000 stranded passengers, costing taxpayers some Â£60 million on hiring planes.
As well as the grounding of its planes, Thomas Cook has been forced to shut travel agencies, leaving the group´s 22,000 global employees — 9,000 of whom are in Britain — out of a job.
Holidaymakers had already reported problems, with guests at a hotel in Tunisia owed money by Thomas Cook being asked for extra money before being allowed to leave, according to a tourist interviewed by AFP.
Chinese peer Fosun, which was already the biggest shareholder in Thomas Cook, agreed last month to inject Â£450 million into the business as part of an initial Â£900 million rescue package.
In return, the Hong Kong-listed conglomerate acquired a 75 percent stake in Thomas Cook´s tour operating division and 25 percent of its airline unit.
Thomas Cook in May revealed that first-half losses widened on a major write-down, caused in part by Brexit uncertainty that delayed summer holiday bookings. The group, which has around 600 stores across the UK, has also come under pressure from fierce online competition.
Cabinet maker Thomas Cook created the travel firm in 1841 to carry temperance supporters by train between British cities.
It soon began arranging foreign trips, being the first operator to take British travellers on escorted visits to Europe in 1855, to the United States in 1866 and on a round-the-world trips in 1872.
The company was also a pioneer in introducing “circular note” — products that would later become traveller´s cheques.