Ferguson and Andrew Mountbatten-Windsor were awarded the honorary Freedom on a visit to York, a year after their marriage.
Mountbatten-Windsor was stripped of his honour in 2022.
Last year, King Charles removed his younger brother’s remaining titles and honours, including his prince title, following growing pressure over his links with Epstein.
During the meeting on Thursday, councillors debated a motion proposing to revoke the honour from Ferguson before voting in favour of it.
The City of York council’s Labour leader Claire Douglas said: “Honorary Freedom is bestowed only on persons of distinction and those having given eminent services to the City of York. As the people of York would expect, holding this status requires upholding the values and behaviours consistent with such an honour. Those who continued to associate with Epstein after his crimes became widely known fall well short of these expectations.
“City of York councillors considered these issues this evening and agreed that removing the honour from Sarah Ferguson was appropriate. This was the right decision to take to maintain the integrity and standing of this important York honour.”
The accolade has previously been bestowed upon politicians and celebrities including Sir Winston Churchill and Dame Judi Dench.