The decision represents a spectacular fall from grace for the 54-times Scottish champions. Rangers went into administration in February before a takeover last month by a consortium led by English businessman Charles Green.
Rangers had hoped to be admitted to the Scottish first division, just one rung below the top Scottish Premier League (SPL) after SPL clubs voted to eject them last week.
However, 25 of the 30 clubs in the Scottish Football League voted for Rangers to start life at the bottom of the footballing pyramid north of the border.
The average attendance in the third division last season was a meagre 475 hardy souls. Rangers had an average crowd of more than 45,000 at their Ibrox stadium despite their travails.
There has been speculation that Scottish soccer could be restructured and an SPL-2 created to accommodate Rangers.
However, Green indicated that Rangers would accept their fate.
"We wish to play a constructive part in Division 3 and encourage our fans to support the other clubs within the league by attending matches and delivering to them the benefits of having Rangers within their league," he said in a statement.
"We are a football club and we just want to get back to playing football," he added.
"OLD FIRM" DISBANDED
It will take Rangers at least three years to return to an SPL that either they or "Old Firm" rivals Celtic have won every season since Alex Ferguson's Aberdeen took the title in 1985.
The fall of Rangers will have serious financial consequences since a five-year SPL television deal with BSkyB and ESPN, worth an estimated 80 million pounds, was based on a minimum of four matches each season between Rangers and Celtic.
Many of the 42 professional clubs in Scotland are already struggling for cash.
However, the Scottish Football League said it had put the integrity of the game ahead of commercial considerations.
"Today's decision has been one of the most difficult for all concerned, but it has been taken in the best interests of sporting fairness which is the fundamental principle of The Scottish Football League," chief executive David Longmuir said.
Rangers went into administration in February over unpaid taxes of around nine million pounds. However, they faced a potentially much larger tax bill relating to how they paid their players over the past decade.
The tax authorities refused to sign off on a proposed settlement with the new owners, forcing the parent company into liquidation and meaning the team had to reapply for a place in the league.
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