The win is a substantial blow to the Democrats as hopes they would gain control of the Senate are dashed even further.
It was not expected the Senate would turn as a result of the election but the result will come as a blow to the liberal party.
Mr Donnelly had previously campaigned with former President Barack Obama.
Mr Obama attended a Gary, Indiana, rally in the place Mr Donnelly was contesting Republican rival Mr Braun.
Midterm elections results: Virginia set to turn blue in SHOCK House result
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Voters on Tuesday went to the polls in congressional elections for 35 of 100 seats in the US Senate.
The Democratic Party needs to pick up two seats to gain control of the chamber from the Republican Party.
But the news of Mr Donnelly’s defeat means the likelihood of a much-prophesied blue wave could be significantly reduced.
Mr Donnelly hoped Mr Obama’s presence on the campaign trail would have helped galvanise key Democrat voters.
But the last-ditch efforts proved futile as Mr Braun claimed victory today.
Mr Donnelly’s campaign message ultimately failed to cut through as he campaigned on three “top priorities”.
Firstly, the Democrat ran on the principle that “the richest country on earth, every citizen deserves access to quality, affordable health care”.
Second, Mr Donnelly broke with his party to support President Trump’s immigration plan, while working to find a path forward for DACA recipients.
And finally, he fought to expand opportunities and help create more good-paying jobs to strengthen the middle class and build strong communities.
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