The Arizona Republican, his party's former presidential nominee and one of eight senators to sign onto a bipartisan immigration reform framework this week, said failure to act means the trend of Hispanic defections from the GOP would continue.
Latino voters supported President Barack Obama over Republican Mitt Romney 71 percent to 27 percent in November, helping to ensure Obama's victory.
McCain said that Republicans have failed to understand the importance of immigration to Hispanic voters and that's cost the party at the ballot box.
"If you have a large bloc of Americans who believe you're trying to keep their ... fellow Hispanics down and deprive them of an opportunity, obviously that's going to have an effect," McCain said.
The Senate framework would provide a path to citizenship for the estimated 11 million illegal immigrants already in the country, secure the border, attempt to simplify legal immigration, and add requirements for employers to prevent hiring of illegal immigrants.
If no bill passes, McCain said, the forecast for Republicans is that "the trend will continue of lack of support from Hispanic voters, and also as you look at the demographics of states like mine that means that we will go from Republican to Democrat over time."
McCain spoke alongside Democratic Sen. Charles Schumer of New York, his partner on the immigration proposals, at a breakfast hosted by Politico.