The International Cricket Council (ICC)'s decision, made at a board meeting on Tuesday, follows similar rulings over the last couple of years by the global chiefs of swimming, rugby union, cycling and athletics.
"Inclusivity is incredibly important to us as a sport, but our priority was to protect the integrity of the international women's game and the safety of players."
Critics of transgender inclusion in women's sport say going through male puberty imbues athletes with a huge musculo-skeletal advantage that transition does not mitigate.
The ICC said the ruling, which followed a nine-month consultation process and applies only to international cricket, would be reviewed after two years.
Australian-born McGahey, who has played international cricket for Canada for more than a year, said the campaign for transgender inclusion in women's sport would continue.
Persons:
Danielle McGahey, McGahey, Nick Mulvenney, Ken Ferris
Organizations:
International Cricket Council, ICC, Thomson
Locations:
Canadian, Canada, Sydney