Lennon, 42, was accused of the offence while driving a black Audi Q7 car on Glasgow's High Street on July 26 last year.
Stipendiary Magistrate Josephine MacLean ruled that there was no case to answer following a trial at the city's Justice of the Peace court.
The judge accepted an argument from Lennon's solicitor that the Crown failed to provide the evidence necessary to convict him.
She told Lennon: "I uphold the submissions that there is no case to answer.
"You are not guilty, you are free to go."
The football boss thanked the judge before leaving court.
His solicitor, Liam O'Donnell, said after the trial: "Neil is pleased that the matter is concluded and accepts it was a misunderstanding."
Lennon went on trial after two police officers said they spotted him driving with his left hand on the wheel and his right hand outstretched, holding a mobile phone and pressing buttons on the keypad.
Constable Maxine Shields, 28, said she was patrolling the Merchant City area with a colleague at around 12.20pm when she saw the alleged offence take place and pulled over the motorist, whom she identified as Lennon.
Second witness Constable Martyn McQuillan, 30, told the court he saw the Celtic star pressing buttons ''in a continuous manner''.
''It appeared from our observations that he could have been sending a text message,'' he said.
Mr O'Donnell argued that, because only one of the two witnesses identified the car by its registration plate, they had not provided the sufficient corroboration of evidence as is required by law.
Secondly, he said the Crown had not proved that the alleged mobile phone use involved "interactive communication", which again would be required for the case to be valid.
Prosecutor Derek Buchanan contested both points but they were accepted by the judge.
The Northern Irishman joined Celtic as a player in 2000 to 2007 and returned the following year as coach. He was appointed manager of the Parkhead side in 2010.