The one-off gig in London's Hyde Park was scheduled to be staged this evening (July 11), but had to be axed due to safety concerns.
Waterman - who was behind the planned event - said that it would have been "impossible" to put on because of the recent poor weather in the area.
"It's devastating. Not just for the acts who were excited, but the people from all over the world who wanted to come, from New Zealand and America," he told BBC Breakfast.
"You feel for them, the fans, the 40,000 people, it's all gone. It's just too wet, it's impossible.
"When we planned this, we said July. We thought it might be damp but we certainly didn't think wed need Noah's Ark out there."
Waterman said that he is hoping to somehow reschedule the gig, with a possible Kylie Minogue and Jason Donovan duet before Christmas, but that the timing may prove to be difficult.
He said: "The problem is getting everyone together. There was this one night free in the Olympic programme, that's why it came about.
"We're trying to come out with logistics. We're offering everyone money back but can't say when we can reschedule.
"We're trying desperately and I'm hoping we can do something before Christmas. But it's down to schedules, Jason and Kylie are busy."
Jason Donovan has spoken of his own disappointment over missing out on the chance to perform 'Especially for You' with Minogue live for the first time.