Thursday morning, a federal judge in Maryland also temporarily blocked the order.
The new ban was announced earlier this month and would have barred people from Iran, Libya, Somalia, Sudan, Syria, and Yemen from entering the US for 90 days and all refugees for 120 days.
Iraq was removed from the list of banned countries, and the new version also exempts green card and visa holders. Contentious language referring to religious minorities was also removed.
But US District Court Judge Derrick Watson in Hawaii issued a Temporary Restraining Order (TRO) after concluding that the ban was unconstitutional, a view based largely on discriminatory comments made by Trump himself.
The Justice Department said it will defend the new travel ban.
"The Department of Justice strongly disagrees with the federal district court's ruling, which is flawed both in reasoning and in scope," the Department said in a statement Wednesday night.
"The President's Executive Order falls squarely within his lawful authority in seeking to protect our Nation's security."
Here's what you need to know about the latest ban, and the ruling on it.
Why has it been blocked? What did the judge say?
The ruling is almost entirely based on the "intent of the Trump administration," says CNN correspondent Jessica Schneider.
"The judge specifically said it was that intent to create this Muslim ban that violated the Constitution's establishment clause... he pointed to several instances, very specifically, saying it was President Trump's own words on the campaign trail... advocating the 'complete and total shutdown of Muslims entering the United States.'"
The judge said it was illogical that the ban was not motivated by religious discrimination.
"The illogic of the Government's contentions is palpable," Watson wrote. "The notion that one can demonstrate animus toward any group of people only by targeting all of them at once is fundamentally flawed."
"Equally flawed is the notion that the Executive Order cannot be found to have targeted Islam because it applies to all individuals in the six referenced countries."
What is Trump saying about the ruling?
At a rally in Tennessee Wednesday night, Trump decried the decision as "unprecedented judicial overreach," and called it a politically motivated move that makes the US look "weak." He's vowed to take the case to the Supreme Court if necessary.
"This goes beyond me, because there'll be other presidents," he said. "We need this and sometimes we need it very badly... for the security of our country."
He was defiant about the ban, and predicted victory upon appeal. "We're going to win... we're going to keep our citizens safe," he told the crowd in Nashville.
He described the new order as "a watered-down version of the first (order)" and said that he wanted to "go back to the first one."
He so far has not attacked Watson, unlike his response to the judge who issued the TRO on his first attempt at a ban. Back then, he tweeted that the "so-called judge" should shoulder the blame for any terror attacks
that may occur while his ban was on lockdown.
Is this judicial overreach?
The judges on the Ninth Circuit Court -- which upheld the first TRO in February -- issued an opinion on the ruling and five Republican-appointed judges alluded
to the idea of judicial overreach.
They wrote "whatever we as individuals may feel about the President or executive order, the President's decision was well within the powers of the presidency."
CNN's Schneider says the argument about the context surrounding the ruling, versus the content of the bill, could be a "big point of contention."
"Should we be looking at the intent of someone who made those comments while he wasn't president?" she asked.
Hawaii Attorney General Doug Chin said the bigger picture is important.
"I don't think Judge Watson was overreaching because there is precedent for the courts to look at the context," he told CNN. "Context matters."
Maryland AG Brian Frosh -- who filed the motion in his state to challenge the order -- argued that it is instead a "great example of executive overreach."
He said "the (federal) judges are doing their job here. It's not just one judge, it's six, seven judges that have all said that the first Muslim ban was a violation of the first amendment and now the second one is as well. Donald Trump's problem is what he himself has said -- he's described this as a Muslim ban."
What's the next step?
Federal judges in several other states, including Washington, are also in the process of evaluating challenges to the new travel ban, but may defer their decisions in light of the nationwide ruling in Hawaii.
Trump has already said he'll appeal the Hawaii judge's order, so it is likely, as with the previous executive order, to be heard in front of the Ninth Circuit Court.
Last time around the Trump administration ultimately dropped the appeal process and instead focused on drafting the revised order, but this time the President has vowed to take it to the Supreme Court if necessary.
"(The ruling) is just a temporary injunction," Chin said. "There's the option to appeal up to the Supreme Court we're all predicting that this isn't the end of the story, that we're simply in a first round, moving on from here."
What is the likelihood of the TRO becoming permanent?
"There's a sense among the lawyers I've spoken to that this time the travel ban is crafted more narrowly and has some chance at being upheld at the end of the day," New York Times columnist Nicholas Kristof told CNN's Don Lemon.
Page Pate, a criminal defense attorney, agreed the ban has a chance of passing on appeal.
"This new travel ban is different. I think the administration addressed some of the deficiencies in the due process area and there is nothing on the face of it which discriminates against Muslims."
Defense attorney and constitutional scholar Alan Dershowitz said that, while the TRO ruling is not guaranteed to be upheld on appeal, it is potentially precedent-setting.
"I believe that this presents a very tough case for the Supreme Court," he told CNN. "It's the first case in which the Supreme Court has been asked to take into account what a political figure said while running for office and use that to interpret the words of a statute."