Governornator Arnie tossed out the measure to crack down on a practice the bill's author says is distracting and dangerous: having a dog, cat or other animal in your lap when behind the wheel.
Celebrities including Jessica Simpson and Paris Hilton are among the motorists seen driving with pets in their laps.
Bill Maze, a Republican assemblyman, proposed the bill in April after seeing a woman driving with three dogs on her lap. It would have fined motorists caught sharing the driver's seat with an animal at least $35 (£19).
"If you've got a live animal, which you're not able to control, and that thing gets between you and the steering wheel or underneath your brake pedal, you've got a problem," Mr Maze said at the time.
The bill was one of scores of measures vetoed by Mr Schwarzenegger last week after a state budget was finally approved after a record 85-day impasse. The governor had over 800 bills to review in a matter of days.
He blamed the veto on the "historic delay" in passing the budget, saying he was only approving bills of the "highest priority for California" due to the curtailed signing period.
Other bills vetoed include a measure requiring pet stores to use humane methods to kill rodents.
The driving-with-animals bill was backed by the Society for the Prevention of Cruelty to Animals in Los Angeles but ridiculed as the "Paris Hilton bill" by critics who described it as unwarranted interference by government.
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