Mr Rancadore, 65, known as The Professor, left Westminster Magistrates' Court in central London with his wife Anne, and had a patterned scarf wrapped around his entire head before getting into the wrong car in a line of traffic.
He was arrested last August after evading Italian authorities for 20 years. They accused him of fleeing Italy as he faced trial over his alleged Cosa Nostra "man of honour" connections.
Senior District Judge Howard Riddle discharged Mr Rancadore yesterday, and he walked free.
When Mr Rancadore realised he was in the wrong car, he quickly got out and ran towards the correct car, leaving a space between him and his wife.
When asked if he was happy to be out of court, his wife could be heard on footage saying: "Yes, of course he is. He's happy to be home."
Mr Riddle told the court yesterday that his original decision was to extradite Mr Rancadore, who has a serious heart condition.
However, the judge said he changed his mind following the ruling in a similar case involving the Court of Florence and Hayle Abdi Badre at the Royal Courts of Justice last week. That judgment stated that there was an insufficient assurance that if Badre was returned to Italy he would not face "the risk of being exposed to prison conditions that would breach his Article 3 rights".
Mr Riddle said: "The judgment of the administrative court is binding on me."