Richard, 75, who was Britain's first home-grown pop star and considered the UK's answer to Elvis Presley, slammed the lengthy and very public probe, saying he had been "hung out like live bait".
The police attracted widespread criticism, including from lawmakers, over their handling of the case after striking a deal with the BBC to broadcast live their raid on Richard's home.
The Crown Prosecution Service (CPS) announced today that Richard would face no further action after reviewing the police case due to insufficient evidence.
"We have decided that there is insufficient evidence to prosecute."
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Richard, who burst on the pop scene in the late 1950s, is the third biggest-selling artist in British singles chart history behind The Beatles and Presley.
His hits include "The Young Ones", "Living Doll", "Summer Holiday", "Congratulations", "Mistletoe And Wine" and "The Millennium Prayer".
In a statement today, Richard said he was "thrilled that the vile accusations and the resulting investigation have finally been brought to a close".
Richard said there was a "widely-shared sense of injustice resulting from the high-profile fumbling of my case from day one".
"I was named before I was even interviewed and for me that was like being hung out like live bait.
"No innocent person should be treated in this way."
After the BBC got wind of the investigation, South Yorkshire Police cut a deal in a bid to prevent them breaking the story.
"The force apologises wholeheartedly for the additional anxiety caused by our initial handling of the media interest in this case," South Yorkshire Police said today.
Their probe into Richard cost 800,000 pounds (USD 1.1 million).