The governor says it duplicates the work of a legislative committee and would cost taxpayers money.
Rell announced her veto on Monday, saying this is the wrong time to create another commission given the state's financial woes.
The 23-member body was supposed to make recommendations to the governor, General Assembly and Supreme Court chief justice on possible changes to sentencing policies and practices. An analysis of the bill said the commission would be funded with existing resources.
But Rell says it would cost the state nearly $130,000 more in salary, benefits and other costs.
An earlier task force recommended that a permanent commission be created.