MPs voted down the prime minister's deal by 149 - a smaller margin than when they rejected it in January.
Mrs May said MPs will now get a vote on whether the UK should leave the EU without a deal and, if that fails, on whether Brexit should be delayed.
She said Tory MPs will get a free vote on a no-deal Brexit.
That means they can vote with their conscience rather than following the orders of party managers - an unusual move for a vote on a major policy, with Labour saying it showed she had "given up any pretence of leading the country".
The PM had made a last minute plea to MPs to back her deal after she had secured legal assurances on the Irish backstop from the EU.
But although she managed to convince about 40 Tory MPs to change their mind, it was not nearly enough to overturn the historic 230 vote defeat she suffered in January, throwing her Brexit strategy into fresh disarray.