Trenton Oldfield, 37, based his appeal against deportation partly on a claim that his British wife, who is of Indian descent, and his baby daughter would face racism in Australia.
Oldfield feared he would be expelled because he had his application for a spousal visa refused after serving six months in prison for the stunt.
The Home Office, or interior ministry, deemed his presence in Britain as "undesirable" after he dived into London's River Thames and disrupted the race in April 2012.
He took his case to the Asylum and Immigration Tribunal in London and judge Kevin Moore decided on Monday to allow his appeal.
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Oldfield said afterwards he was "delighted to be able to get back to my work and spend time with my family".
In his application, Oldfield claimed that Australia was a racist country and his wife Deepa Naik and their five-month-old daughter would face discrimination if they were forced to move back with him.
"Australia to Deepa... Is a particularly racist country," he said.
Oldfield said that while most of it was "water cooler" or unintentional racism, some Indians in Australia had been burned and physically assaulted.
"I don't think I could put either Deepa or my child through that," he said.
Oldfield also told the tribunal his inspiration for the Boat Race stunt came while he was looking after his wife's father, who was dying from cancer.
"I think I was vulnerable in terms of realising how short life can be," an emotional Oldfield said, in between sobs.
The judge agreed with his lawyer Stephanie Harrison, who argued that Oldfield's good work in the community outweighed the inconvenience caused by his protest, which he has vowed never to repeat.
"He has been trying... To make a difference to people's lives who are on the rough end of society," she said.
"He should not be doubly punished.