The Hibernian manager was contesting a two-game suspension - one of which was suspended - he received last month for breaching Rule 203 in a game against Dundee United last October, when he was still in charge of Inverness Caley Thistle.
The former England captain was sent to the stand during a Scottish League Cup tie after a touchline bust-up which also resulted in Tannadice coach Darren Jackson being sent off.
Butcher admitted a charge at a disciplinary tribunal on November 21 of "misconduct by failing to behave in a responsible manner by acting in an aggressive manner towards players of the opposing team" but appealed against the sentence, which allowed him to be in the dug-out for his first game in charge of Hibs, against St Mirren on November 23.
The SFA confirmed that Butcher's appeal had been "partially successful", adding: "Fine of £1000 quashed. Two-match suspension remains: one-match immediate and one match suspended until the end of season 2013/14, and to take effect in the event that Mr Butcher is found in breach of Rule 203 during that period."
Butcher will have to sit in the Easter Road stand on Saturday for the league visit of St Johnstone.