Augustin Misago had been accused of participating in meetings during which Rwanda's former extremist Hutu government discussed plans to kill minority Tutsis.
The 56-year-old priest, a large crucifix hanging from his neck, sagged in his chair as Presiding Judge Jaliere Rutaremara dismissed each of the seven genocide charges against him.
``The court orders Misago freed. Misago has won the trial,'' Rutaremara said on behalf of the three-judge panel, setting off a explosion of applause in the packed courtroom.
Misago had denied any responsibility for the massacres, saying he was wrongly arrested on orders of former President Pasteur Bizimungu. If convicted, Misago had faced a mandatory death sentence.
Misago was bishop of the southern Rwandan diocese of Gikongoro, where tens of thousands died at the hands of Hutu soldiers, militiamen and ordinary civilians during the 100-day genocide.
Many victims were killed in churches and with the suspected complicity of priests and nuns. The slaughter ended when Tutsi-led rebels drove the government and army from power.
In closing arguments last month, defense attorneys said Misago had no choice but to attend the security meetings where the killings were discussed.
``If he had refused to go, he would've been killed himself,'' said Alfred Pognon, one of Misago's lawyers.
In the highly publicized trial that strained Rwanda's relations with the Vatican, which proclaimed his innocence, Misago also was accused of sending three priests and more than 10 schoolchildren to their deaths by denying them shelter in his parish.
Misago is the ranking Roman Catholic cleric among more than 20 nuns and priests accused of participating in the genocide. Two priests have already been convicted and sentenced to death.
More than 125,000 genocide suspects are jailed in Rwanda. More than 1,500 have been tried so far, and 300 have been sentenced to death. The first 22 were publicly executed on April 24, 1998.
The main architects of the genocide, most of whom fled Rwanda when the rebels seized power, are being tried by a U.N. tribunal in the northern Tanzanian town of Arusha.