More than 700,000 federal employees face unpaid leave with no guarantee of back pay once the deadlock is over.
It is the first shutdown in 17 years and the dollar fell early on Tuesday.
Goldman Sachs estimates a three-week shutdown could shave as much as 0.9% from US GDP this quarter.
On Tuesday, Mr Obama blamed the House of Representatives for the stalemate and said he would "keep working to get Congress to reopen the government [and] restart vital services".
"This shutdown was completely preventable. It should not have happened," he wrote in a letter to federal government employees.
On Monday, House Speaker John Boehner told reporters he hoped the Senate would agree to a committee between the two chambers known as a conference "so we can resolve this for the American people".
"The House has voted to keep the government open but we also want basic fairness for all Americans under Obamacare," he said.
But on Tuesday morning, the Senate voted 54-46 to reject the request for formal negotiations to end the impasse.
- State department will be able to operate for limited time
- Department of defence will continue military operations
- Department of education will still distribute $22bn (£13.6bn) to public schools, but staffing is expected to be severely hit
- Department of energy - 12,700 staff expected to be sent home, with 1,113 remaining to oversee nuclear arsenal
- Department of health and human services expected to send home more than half of staff
- The Federal Reserve, dept of homeland security, and justice dept will see little or no disruption
- US Postal Services continue as normal
- Smithsonian institutions, museums, zoos and many national parks will close
The BBC's Mark Mardell in Washington says the divide in US politics has grown so bitter that government itself cannot function.
Democrats were never likely to make concessions on healthcare reform - Mr Obama's signature achievement and a central issue in last year's presidential election, our correspondent says.
But Republicans have made demands that they knew would not be met rather than be accused of weakness and betrayal by their own hardliners, he adds.
Engineers with the US Navy talk to the BBC about what they will do during a shutdown: Make skis
On Monday, the Democratic-led Senate twice rejected bills from House Republicans that would have funded the government only if funding for President Obama's healthcare law was delayed for a year.
Major portions of the healthcare law, which passed in 2010 and has been validated by the US Supreme Court, took effect on Tuesday regardless of whether there is a shutdown.
President Obama went on national television to criticise Republicans for trying to refight the last election.
Obama accused Republicans of demanding ransom over Obamacare
A shutdown would have "a very real economic impact on real people, right away," he said, adding it would "throw a wrench" into the US recovery.
"The idea of putting the American people's hard-earned progress at risk is the height of irresponsibility, and it doesn't have to happen."
As the shutdown neared, the Senate's Democratic majority leader blamed Republicans for the imminent halt to all non-essential government operations.
"It will be a Republican government shutdown, pure and simple," said Harry Reid, referring to the Republicans as "bullies".
Tourism revenues are expected to take a hit as attractions such as the Statue of Liberty close down
National parks, museums, federal buildings and government services have been shut down indefinitely
Some 700,000 federal workers have been sent home on unpaid leave
Some White House staff have been sent home, with all Smithsonian institutions in Washington closed
Mr Obama has signed legislation ensuring that military personnel would be paid. The defence department had advised employees that uniformed members of the military would continue on normal duty, but that large numbers of civilian workers would be told to stay home.
Under the shutdown, national parks and Washington's Smithsonian museums will close, pension and veterans' benefit cheques will be delayed, and visa and passport applications will go unprocessed.
Programmes deemed essential, such as air traffic control and food inspections, will continue.
The US government has not undergone a shutdown since 1995-96, when services were suspended for a record 21 days.
Republicans demanded then-President Bill Clinton agree to their version of a balanced budget.
As lawmakers grappled with the latest shutdown, the 17 October deadline for extending the government's borrowing limit looms even larger.
On that date, the US government will reach the limit at which it can borrow money to pay its bills, the so-called debt ceiling.
House Republicans have also demanded a series of policy concessions - including on the president's health law and on financial and environmental regulations - in exchange for raising the debt ceiling.
Guy Crundwell from Connecticut told the BBC that politicians should be solving the country's problems rather than engaging in a "charade".
Source : http://www.bbc.co.uk/news/
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