The superstar was sentenced to five years in jail in May for crashing his car into a group of homeless people, killing one man.
A judge in India had convicted the 49-year-old of culpable homicide over the hit-and-run, which happened at the end of a night out drinking in Mumbai in 2002.
Khan had blamed his driver for the crash and had faced a maximum sentence of 10 years in prison.
During the trial, which began in 2014 after several legal hold-ups, witnesses claimed Khan was at the wheel when his Toyota Land Cruiser mounted the pavement and ploughed into five men as they slept.
Khan’s driver told the court in April that he was driving at the time, and the accident had been caused by a burst tyre.
The Bombay High Court has now decided that the prosecution failed to establish its case against Khan and on the basis of the evidence submitted he cannot be convicted.
Indian news agency ANI tweeted that BJP politician Babul Supriyo said the judiciary’s verdict should be supported.
Khan’s fans gathered outside his home in Mumbai to celebrate his acquittal.
The actor is no stranger to controversy, having been convicted of killing an endangered Indian gazelle in 1998.
He also allegedly assaulted Aishwarya Rai, a Bollywood actress and former Miss World, following the breakdown of their relationship.
He is referred to by some Indian media as the “Tiger of Bollywood” or “Box Office King” because of his remarkable pulling power at the cinema.
He was the seventh highest-earning movie star in the world last year, according to Forbes.
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