However, London's Metropolitan Police will be prosecuted as a whole under health and safety laws.
Jean Charles de Menezes, a 27-year-old electrician, was killed by police on an underground train on July 22, 2005.
Stephen O'Doherty, senior lawyer from the Crown Prosecution Service's Special Crime Division, which decides whether there is enough evidence to prosecute, said there was no realistic prospect of convicting any individual.
"I concluded that while a number of individuals had made errors in planning and communication, and the cumulative result was the tragic death of Mr de Menezes, no individual had been culpable to the degree necessary for a criminal offence," he said.
"The two officers who fired the fatal shots did so because they thought that Mr de Menezes had been identified to them as a suicide bomber and that if they did not shoot him, he would blow up the train, killing many people," he added.
O'Doherty read a statement to reporters, but took no questions.
Asad Rehman, speaking for the Justice4Jean rights campaign group, said the slain man's family "will be very, very disappointed if no officers are held to account for their actions.
"The family do not think health and safety regulations are an appropriate way to hold the police accountable over this issue," Rehman said.
"They will be considering all their legal options to ensure that somebody is answerable in a court of law."
The shooting occurred two weeks after four suicide bombers killed themselves and 52 commuters on three London underground trains and a bus, and a day after a similar but failed set of attacks.
Police, who have apologised for the killing, said later they had mistaken De Menezes for one of the suspects in the failed attacks.
Jan Berry, chairman of the Police Federation, called the decision "just, fair and difficult."
"This tragedy took place at an unprecedented time for British policing and in the wake of a new and unrivalled terrorist threat," he said.