Al-Zeidi, 30, has become a folk hero across the Arab world since the attack, where Bush is reviled over the 2003 US-led invasion of Iraq.
The shoes narrowly missed Bush, who was addressing a news conference with Nuri al-Maliki, the Iraqi prime minister, during the incident last December.
Expression of freedom
Lawyers have long argued that al-Zeidi's act was an expression of freedom and not a crime.
"We think al-Zeidi does not deserve to be imprisoned even for one day," al-Zeidi's chief defence attorney, Diaa al-Saadi, told the Associated Press news agency.
"What he has done falls in the category of freedom of expression and he was trying to express his anti-occupation feelings," Yahya al-Ittabi, another lawyer for al-Zeidi, said, welcoming the court's decision.
He said the fact that the court did not bow to government pressure to uphold the existing sentence, reflected the "independence and the integrity of the Iraqi judiciary system".
Al-Zeidi has been in Iraqi custody since the attack and though he is scheduled to be released in December 2009, his lawyer said he could be free within five months with credit for good behaviour.