Raising the right arm in the style of the Nazi dictator is normally illegal in Germany and prosecutors had demanded artist Jonathan Meese be fined €12,000.
But the court in Kassel, central Germany, sided with the free-speech argument of the defence and found the 43-year-old had used the gesture as part of an artistic performance.
Berlin-based Meese, who a sculptor and performance artist, was taking part in a forum talk on "megalomania in the art world" with news weekly Der Spiegel at Kassel University in June last year when he twice performed the offending gesture. He also daubed the Swastika on a toy alien.
"Art has triumphed," Meese said after the verdict was read on Wednesday. "Now I am free. Art must be free.”
Meese has argued his repeated use of the Hitler salute and the swastika symbol are satirical and aim to lessen not promote their potency.
On Wednesday he told the court: "I can paint an apple without ever having eaten an apple. I can do the Hitler salute without having anything to do with it."
When the verdict was read out Meese looked relieved and put on his sunglasses on. The judge said: "It is clear that the accused does not identify with National Socialist symbols or with Hitler, rather he mocks them."
But for Meese the ruling was a triumph for art as well as for him. His lawyer Heide Sandkuhl said: "You don't have to like what Jonathan Meese did but you should not punish him for it."
Prosecutors are yet to decide whether to appeal the verdict.