The live-action reboot had been due in cinemas, but the company has now said it will be put on Disney+ in the US.
The UK Cinema Association said it understands the same will happen in the UK, which is "hugely disappointing".
Chief executive Phil Clapp said: "For many this will seem a step backwards rather than forward."
Cinemas have been reopening in the UK since July, but face a battle to tempt fans back. Most new releases have been delayed or released online.
Mr Clapp said: "With cinemas across the UK now continuing to re-open and welcome back their customers, the decision by Walt Disney Studios yesterday to put Mulan on their Disney+ service and not into cinemas will be seen by many as hugely disappointing and mistimed."
On Tuesday, Disney confirmed the film would be available online in the US for $29.99 (£23) from 4 September.
Chief executive Bob Chapek said the cost would vary in other countries, including Canada, Australia, New Zealand and parts of Western Europe. But Disney has not confirmed its plans for the UK.
Mr Clapp said: "Rather than playing a great new family film in the best place possible to see it, the cinema theatre, audiences are instead being encouraged to stay home and pay a premium price to watch it."