The Queensland senator came under fire claiming in an interview there were "no good Muslims", which was roundly condemned by Labor and Liberal MPs as well as the Islamic community.
The censure motion passed 36 to 17, with Labor backing it as well as the Greens.
Foreign Minister Penny Wong moved the motion against Senator Hanson on Monday, saying the comments distressed not just Islamic Australians but all Australians.
"(Muslims) are the first to condemn the radical extremists who commit terrorist acts in the name of religion. And to claim that none of them are 'good' is to say that there are no good Australians amongst them," Senator Wong told parliament.
"Words of parliamentarians echo into classrooms, workplaces, communities.Â
"They help shape how others see each other and how they see themselves. A nation divided against itself is a nation diminished."
A censure motion is a formal motion of disapproval of an MP or senator for their actions, but does not come with a punishment or suspension from the chamber.
Senator Hanson dismissed the censure motion as a political attack following One Nation's rise in opinion polls.
"This is a stunt and the people out there are fed up with this," she said.
"The fact is in your gut, you can't stand the fact is that One Nation is now on 27 per cent and 28 per cent. You can't stand it."
The latest Newspoll revealed Senator Hanson's party had the second-highest primary vote and was in front of the coalition.
While the coalition backed parts of the government motion affirming support for multiculturalism and rejecting vilification, Liberal senator Michaelia Cash said the opposition would not support a censure.
"The censure is one of the Senate's serious institutional sanctions and it should therefore be rare and sober, not used as a routine tactic to score political points," she said.
Two moderate Liberal senators Paul Scarr and Andrew McLaughlan crossed the floor to support the censure.
Senator Scarr held the immigration portfolio under former Liberal leader Sussan Ley and took a more moderate approach to multiculturalism than his colleagues, before being dumped by Angus Taylor after he assumed the leadership.
The censure debate followed Senator Hanson storming out of the chamber after calling independent Lidia Thorpe a "bitch" and later refusing to apologise for the slur.
The insult came amid a heated back-and-forth between the two MPs during a debate on US-Israel strikes on Iran, during which Senator Thorpe continuously called Senator Hanson a liar.
Senator Hanson subsequently said she apologised "if the public heard me call Senator Thorpe a bitch", but added she didn't take back the comment.
"The Senate chamber is meant to be a place for debate, not constant screaming and yelling over the top of senators like we see from Senator Thorpe," she told AAP following the insult.
"I will not be repeatedly called a liar ... I've had a gutful of her and so too has the vast majority of Australians."
The heated exchange comes as the coalition faces pressure to reject a preference deal with the resurgent One Nation in an upcoming by-election for the NSW seat of Farrer.
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