Public prosecutors in the western city of Mainz said on Tuesday that they had dropped their investigation into Jan Böhmermann over a poem he wrote about Turkish President Recep Tayyip Erdogan.
"The results of the investigation show that criminal acts could not be proven," prosecutors said in a statement.
Böhmermann read his poem on air in March after the Turkish government had complained about another comedy show’s satirical song mocking Erdogan’s poor human rights record.
In contrast to the song, the satirist wrote his so-called “smear” poem to demonstrate something that actually would not be acceptable.
The poem accused the Turkish leader of, among other things, hitting little girls, having sex with goats and watching child porn.
The Turkish government then complained and invoked paragraph 103 of the German Criminal Code, under which insulting a foreign head of state can result in a three-year jail term. If the insult is an intended slander, the sentence can stretch to five years.
When Chancellor Angela Merkel announced that the government would allow an investigation into Böhmermann to go forward, many criticized her for “kowtowing” to the Turkish leadership.
Merkel ultimately admitted to making a mistake in her reaction to the poem - not in regards to allowing the investigation to go ahead, but for having initially called the poem "deliberately hurtful".
Prosecutors explained on Tuesday that the "piece was part of a well-known satirical television broadcast, and that an average TV audience should therefore assume that statements made there are often accompanied by exaggerations which often lack seriousness".
Böhmermann himself has defined TV shows such as his as a "nonsense programme", they said.
"In view of the exaggerations... there is no evidence that the accused was making a serious attack on the personal or social reputation of the Turkish president," prosecutors concluded.
Prosecutors also explained that they assumed the poem to be intended as an example of freedom of expression exceeding its limits.
"Public prosecutors have met our legal position that we have expressed from the beginning," said Böhmermann's lawyer, Christian Schertz.
"This is unlike the Chancellor, who apparently - while ignorant of the exact facts - let her spokesman sum up the satirical piece by Mr. Böhmermann straightaway under the blanket term of 'deliberately hurtful'."
Böhmermann wrote on Twitter that he planned to state his position on the prosecutors' decision on Wednesday.
Erdogan has also filed a separate private suit against Böhmermann, which will be heard in November in Hamburg. The Hamburg court in May already banned Böhmermann from publicly reciting passages of his poem.