The court’s decision clears the way for his possible return and could also see Honduras readmitted to the Organization of American States (OAS).
Prosecutors said they were considering an appeal against the court’s ruling.
The appeal court dismissed the charges of fraud and of falsifying documents.
OAS Secretary General Jose Miguel Insulza said that the court’s decision “put an end to the uncertainty over the former president’s legal situation”.
Insulza said consultations would begin on readmitting Honduras, given that the main condition for the country’s return had been fulfilled.