Anthony Miano was arrested for "repeatedly shouting and uttering homophobic remarks" in Dundee city centre in January after a complaint.
Mr Miano - a former deputy sheriff in Los Angeles - claimed he should never have been arrested, while his supporters accused police of an "overzealous reaction" .
The controversial preacher was detained after preaching about "sexual sin" in Dundee's city centre.
His supporters say he was preaching to city centre shoppers about "sexual sin -including adultery, promiscuity and homosexual practice" when an angry member of the public reacted to his gay lifestyle comments.
Police arrested Mr Miano, with the preacher held in cells at Dundee's police HQ until he appeared in court.
He was due back in court on Wednesday to stand trial but yesterday confirmed they had dropped the charge.
Writing on his blog, Miano, 49, of Valencia, California, said prosecutors had reviewed video evidence and found "nothing that constituted hate speech".
He said: "The prosecutors found nothing in my preaching that constituted 'hate speech' and came to the conclusion that they had no case against me.
"There is also the decision I need to make as to whether or not pursue redress in Scotland's civil courts against Police Scotland. I will discuss this with my attorneys."
A spokesman for the Crown Office and Procurator Fiscal Service yesterday confirmed the case against Miano had been dropped.