Vaughan said Flintoff's drunken antics in the West Indies, where he had to be rescued from a capsized pedalo boat, led to a drop in morale.
''We arrived at the World Cup in a positive frame of mind,'' The Guardian quoted Vaughan as saying.
''But unfortunately incidents happened which affected the team.
You have to be honest, the Fredalo incident did affect the team. It did affect morale.'' Vaughan said the players did not dare go out and enjoy themselves after the incident.
''We just started taking it all too seriously. That might sound silly but everyone was too tense and desperate. There was no escape,'' Vaughan said.
Flintoff was stripped of the vice-captaincy after the incident.
England were eliminated at the Super Eights stage of the World Cup, failing to reach the semi-finals.
Vaughan also said he had to take some blame for England's failure because he was so tense after missing the crushing Ashes defeat in Australia through injury, a series in which Flintoff deputised as captain.
Flintoff is now recovering from surgery and may be out of action most of the home season. England are 1-0 up after two tests of a four-match series against West Indies and next host India.
Vaughan said he had been sending text messages to Flintoff since the operation.
''We're certainly a better team with him...I've come back from knee injures and he's come back from ankle injuries so he can certainly do it again,'' Vaughan said.