Positive initial talks took place between the Dons and Gerrard, 36, who will leave LA Galaxy in December.
But the League One side will now continue their search to replace Karl Robinson elsewhere, having already spoken to other candidates.
Gerrard has been linked with Celtic, Inter Milan and a return to Liverpool.
Richie Barker will continue in caretaker charge of the Dons for Tuesday's match against Chesterfield, with the club in the relegation zone of the third tier of English football.
Gerrard, the fourth-most capped England international, left the MLS side last week, saying he had "options on and off the pitch".