After nine hours of deliberations, the judges at the Court of Cassation delivered a ruling that brings to an end a lengthy legal saga which lifted the lid on the "bunga bunga" sex parties the billionaire tycoon and former prime minister organised in his Milan villa.
It also leaves the 78-year-old, who served three terms as premier, free to resume a central role in politics at the helm of his centre-right Forza Italia party.
Berlusconi has just finished serving a community service order for corporate tax fraud and remains embroiled in several other legal cases.
But they are thought unlikely to prevent him from potentially energising opposition to Prime Minister Matteo Renzi's plans to reform Italy's government and electoral system.
Tuesday's late night verdict came after a hearing in which a senior prosecutor had described the elderly party-lover as having a "dragon's passion" for teenage girls.
Berlusconi was convicted in 2013 of the most serious charges he has faced in a scandal-tainted career, only to be acquitted on appeal a year later.
The quashing of his seven-year prison term and a lifetime ban from public office triggered a counter-appeal by prosecutors to the Court of Cassation.
After a three and a half hour hearing earlier on Tuesday, the judges spent nine hours considering the case before delivering their eagerly-awaited and potentially hugely significant verdict.
The billionaire businessman whose empire includes the AC Milan soccer club, has always denied paying for sex with a 17-year-old dancer called Karima El-Mahroug who went by the stage name "Ruby the Heart Stealer."
He maintained he only tried to help the Moroccan national when she was later arrested for an alleged theft because he thought she was a niece of the then Egyptian president Hosni Mubarak.
The appeal court appeared to accept that argument when it ruled that Berlusconi had not abused his power. The court also ruled that Berlusconi had not committed a crime in having sex with Ruby as he did not know she was under 18, the legal minimum for a prostitute to sell sex in Italy.