Tsvangirai, 53, was arrested in June 2003 after a week of protests called by his Movement for Democratic Change (MDC) that the government said were aimed at overthrowing President Robert Mugabe.
Prosecutor Florence Ziyambi told the Harare magistrate's court on Tuesday that the state was "withdrawing the charges before plea" without stating any reasons for the about-turn.
A conviction on treason charges carries the death penalty in Zimbabwe.
Tsvangirai showed no emotion when the magistrate read out the prosecution's decision.
"He never committed treason," Tsvangirai's lawyer Eric Matinenga said.
"Someone has seen sense and did the proper thing. Admittedly someone might decide to bring up the case again, but when you look at the facts, I don't think anybody in his right senses would do so," he said.
Tsvangirai himself declined to comment on the decision, referring journalists to his lawyer.
The opposition leader had denied that the strikes and marches were aimed at toppling Mugabe, arguing that they were spontaneous demonstrations of public anger at the mounting hardships faced by Zimbabweans.
The former trade union leader who formed the MDC in late 1999 was acquitted for treason in October last year after an almost six-month trial on separate charges of plotting to kill Mugabe, in power since independence in 1980.
The opposition leader is accused
of trying to topple Robert Mugabe
The Zimbabwean government sought leave to appeal in December, but withdrew that appeal in February shortly before parliamentary elections in March.
Chris Mhike, a member of Tsvangirai's defence team, said: "It simply means the state had no case against Tsvangirai.
"If they had any evidence against him, why would it take them two years trying and failing to come up with a trial date?"
Tsvangirai was arrested in June 2003 and spent two weeks in police cells and a remand prison before being granted bail.
At that hearing two years ago, Tsvangirai was brought before the High Court in leg irons and wore khaki prison garb for his bail hearing. The usually clean-shaven opposition leader had a sprouting grey beard when he was released from jail.
He has been appearing in court regularly for remand, but his lawyers had complained at the last hearing that the state was taking too long to go to trial.
"Practically, this is the end of the matter and he can now focus on his work. He lost a lot of time at the courts and this also restricted his travels"
Defence team member
Mhike said the withdrawal of the charges meant Tsvangirai would now focus on his work.
"Practically, this is the end of the matter and he can now focus on his work. He lost a lot of time at the courts and this also restricted his travels."
The opposition leader over the past month has visited communities affected by the demolitions campaign that has left 700,000 homeless and which he has condemned as an act of retribution against his supporters.
Tsvangirai is also preparing for a challenge in the Supreme Court against Mugabe's victory in 2002 elections although no date has been set for the case.
His party is also challenging in court the outcome of the March parliamentary polls that gave the MDC 41 seats compared to 78 for Mugabe's ruling Zanu-PF.