City police arrested Ahmad Shaikh and Salman Kalam Shaikh on February 4 under section 295 A (acts intended to outrage religious feelings) of the Indian Penal code. The action led to widespread outrage.
The French magazine had been a target of terrorist attack last month for publishing cartoons of the prophet Mohammad.
"The accused are discharged," said Additional Metropolitan Magistrate A A Kulkarni after the police said they did not have sufficient evidence against them.
Dalvi also faced FIR at N M Joshi Marg police station here, following which she approached the sessions court last week to seek anticipatory bail.
On February 9 the Bombay High court restrained Maharashtra government and police from taking any coercive steps, including arrest, against her.