Environment secretary Michael Gove was eliminated leaving Jeremy Hunt and Boris Johnson to face each other in the race to be the next prime minister.
Mr Gove was supported by 75 MPs - just two votes short of Mr Hunt's 77 in the latest Tory leadership ballot.
READ MORE: Conservative leadership race: Brexit no deal objector Rory Stewart is eliminated
Mr Johnson, considered the favourite in the race, was backed by 160 Conservative MPs, well more than half of those who voted.
The former foreign secretary and Mr Hunt will now compete in a run-off of the party's 160,000 or so members, and the winner will be announced in the week of July 22.
On Twitter Gove congratulated his rivals and said he was "naturally disappointed but so proud of the campaign we ran".
His campaign manager Mel Strike said Mr Gove’s cocaine admission had damaged his leadership bid. “It stalled us and meant momentum was lost at that time,” he said.
Mr Gove admitted on the Andrew Marr Show 11 days ago that he was "fortunate" to avoid prison after using cocaine several times 20 years ago.
The Tory leadership hopeful previously said he took the class A drug while working as a journalist.
Mr Johnson said he was "deeply honoured" to have gained the backing of more than half of all Tory MPs.
I’m deeply honoured to have secured more than 50 per cent of the vote in the final ballot. Thank you to everyone for your support! I look forward to getting out across the UK and to set out my plan to deliver Brexit, unite our country, and create a brighter future for all of us. pic.twitter.com/i5D4ByurAM
— Boris Johnson (@BorisJohnson) June 20, 2019
Mr Hunt admitted he was the "underdog" but said that in politics surprises happen "as they did today".
And he congratulated Mr Gove on his campaign - "his energy, intellectual rigour and the passion of someone whose own story speaks to Conservative values as much as his superb oratory".
READ MORE: Boris Johnson: Stop Scottish people from becoming PM
He added: "Michael will always be one of the brightest stars in the Conservative team."
An earlier ballot of MPs on Thursday saw Home Secretary Sajid Javid knocked out and Mr Gove leapfrog Mr Hunt into second place.
Count me in! Really looking forward to a debate of ideas with my colleague @Jeremy_Hunt on @ITV https://t.co/F1TqYHoVKQ
— Boris Johnson (@BorisJohnson) June 20, 2019
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