Prosecutors accused 28-year-old Mehserle, a transit police officer, of intentionally shooting Grant dead because he was resisting arrest during the confrontation at a train station on New Year's Day 2009.
But the jury accepted Mehserle's explanation that the shooting had been a tragic accident that occured in the heat of the moment when he accidentally fired his pistol rather than his Taser stun weapon at Grant.
Grant had recently been released from jail after being sentenced to 16 months for a gun-possession charge filed after he ran from police and was subdued by an officer with a stun gun.
Video footage of the incident show Mehserle holding his head in his hands in the moments after the shooting, apparently in disbelief at what he had done. But prosecutors said that he did not tell anyone he had shot Grant by accident until the day after the incident.
Relatives of Grant, a young father who worked as a butcher, reacted with fury to the verdict, citing it as evidence of institutional rascism still prevelent in California.
"My son was murdered, and the law hasn't held the officer accountable the way he should be," Grant's mother, Wanda Johnson, said outside the court.
Workers in Oakland were cleared to go home early as news of the verdict broke in anticipation of potential unrest following the decision, but protests remained peaceful.
Barbara Plantiko, a 41-year-old immigration lawyer at the protest, said that she did not believe that Mehserle was innocent. "I just don't buy he got confused. I don't think that it was an accident," she said. "It's unbelievable this guy is getting less jail time than someone who wrote a bad check."
Civil rights groups also reacted angrily to the verdict. "We are outraged that the jury did not find guilty of murder in a case that is so egregiously excessive and mishandled," said Benjamin Todd Jealous, head of the National Association for the Advancement of Coloured People (NAACP).
Prosecutors in Los Angeles have not won a murder conviction in a police shooting case since 1983.