Hill was given permission to hold talks with Tykes officials last week, but the 42-year-old is staying with the League One side.
A statement from Spotland read: "Keith Hill has confirmed he will not be moving to Barnsley and it is business as usual at Rochdale."
Barnsley are looking for a manager to replace Mark Robins, who left Oakwell last week. A spokesman said: "Barnsley can confirm that Keith Hill is no longer on its shortlist of applicants for the first-team manager's position.
"The club continues to interview candidates and does not expect to arrive at a decision on the new manager until next week at the earliest."
Brian Laws, Kevin Blackwell, Danny Wilson, Phil Parkinson and Alan Irvine have also been linked with the role.
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