The case led to Terry being stripped of the England captaincy by the Football Association ahead of the European Championship and the departure of coach Fabio Capello who disagreed with the decision.
After hearing four days of evidence at a London court, chief magistrate Howard Riddle decided that Terry was not guilty of a racially aggravated public order offence in a confrontation with Queens Park Rangers player Anton Ferdinand during the match in October.
Terry maintained he only used an offensive term sarcastically to counter the obscenity he claims Ferdinand was accusing him of using.
"It is highly unlikely that Mr Ferdinand accused Mr Terry on the pitch of calling him a black [expletive]," Riddle wrote in his judgment. "However I accept that it is possible that Mr. Terry believed at the time, and believes now, that such an accusation was made.
"The prosecution evidence as to what was said by Mr Ferdinand at this point is not strong. Mr [Ashley] Cole [the Chelsea defender] gives corroborating [although far from compelling corroborating] evidence on this point. It is therefore possible that what he said was not intended as an insult, but rather as a challenge to what he believed had been said to him."
There were cheers in Court One at Westminster Magistrates' Court from members of Terry's family after the verdict.
Prosecutors accepted the decision.
"The very serious allegation at the heart of this case was one of racial abuse," Alison Saunders, Chief Crown Prosecutor for London, said. "It was our view that this was not 'banter' on the football pitch and that the allegation should be judged by a court.
"The chief magistrate agreed that Mr Terry had a case to answer but having heard all of the evidence he acquitted Mr Terry of a racially aggravated offense." – Sapa-AP