Deepa Mehta's film Water lost out to the German film The Lives Of Others at the 79th Annual Academy Awards in Los Angeles in the Best Foreign Film category.
The other entries in this category were Algeria's Days of Glory, Denmark's After the Wedding and Mexico's Pan Labryinth.
Director Deepa Mehta arrived at the Oscars with her lead cast of John Abraham, Lisa Ray and Seema Biswas, as well as husband-producer David Hamilton and daughter Devyani Saltzman.
Though the film was based on an Indian subject, it could not be nominated from India after right wing Hindu fundamentalists disrupted the shooting of Water in 2000. Deepa then moved to Sri Lanka and shot the film for the second time.
Water will release in India on March 9.
