Judge Leonie Brinkema decided prosecutors may not present evidence at trial arguing that Moussaoui helped plan the 2001 attacks on New York and Washington, in which about 3,000 people died.
All of the six charges against Moussaoui are related to the 11 September attacks.
Brinkema has said Moussaoui may not receive a fair trial unless he is allowed to question imprisoned al-Qaida leaders as defense witnesses.
"I think it's a great decision, because it takes the death penalty off the table"
one of three court-appointed lawyers for Moussaoui
Access to al-Qaida
In January she ruled that Moussaoui should have access to the al-Qaida leaders, which he claims will clear him of the charges. US officials have refused access citing national security issues.
“I think it's a great decision, because it takes the death penalty off the table,” said Gerald Zerkin, one of three court-appointed lawyers for the Frenchman.
The judge had even considered dropping all charges against Moussaoui, as the defence has requested. Moussaoui has been conducting his own defence, though he has been assigned court lawyers.
“I don't know what the government will do, I won't even speculate on that,” Zerkin said.
The government “won't provide witnesses who have specific information on 9/11 and have beneficial information about what goes toward whether he's eligible for the death penalty,” Zerkin added.
Another Moussaoui lawyer, Edward MacMahon, said: "The way I read the court's opinion, it tried to balance the government's national security concerns against Moussaoui's fair trial rights."
The US Justice Department has indicated it would like the case dropped so that it can get an appeals court to rule on whether Moussaoui should have access to the al-Qaida leaders.
A dismissal of Moussaoui's indictment does not mean that he will go free.
Moussaoui has asked to question Khalid Sheikh Mohammed, considered al-Qaida's number three official, who was captured in Pakistan in March; Ramzi ben Al-Shaiba, another alleged 11 September conspirator; and Hambali, al-Qaida's alleged Southeast Asian mastermind.
Moussaoui, who has pledged allegiance to Osama bin Laden, has admitted that he was to stage an attack. However he has denied being part of the 11 September plot.
All three al-Qaida leaders are designated "enemy combatants" and are being held at secret locations.
Moussaoui was detained by US authorities just before September 11.
Prosecutors claim Moussaoui was to have been the 20th hijacker, after 19 men hijacked four jets and crashed two of them into the World Trade Centre in New York and a third into the Pentagon outside Washington.
A dismissal of Moussaoui's indictment however does not mean that he will go free.