Park House on the Sandringham estate in Norfolk was where Diana lived until she was 14 while her family rented it from the Queen.
The Leonard Cheshire charity is to close the three star hotel after a £2.3million refurbishment was shelved amid uncertainty around the pandemic.
The Queen gave the house and its grounds to the charity in 1983 and it opened, offering respite care for the disabled and their families, four years later.
The Sandringham estate now hopes to find a new tenant – but not one intending to use it as a private home.
A spokesperson for the estate said: “We understand the Leonard Cheshire decision and are sad that their long association with Park House is ending under such circumstances.”
A statement on the charity’s website said: “The current fundraising environment is hugely challenging.”