The former Merseyside and West Yorkshire chief constable had been charged with four counts of misconduct in a public office, all relating to alleged lies he told about his role in the aftermath of the 1989 tragedy in which 96 Liverpool supporters died.
But, at a Preston Crown Court hearing before judge Sir Peter Openshaw on Tuesday, Sarah Whitehouse QC, for the Crown Prosecution Service (CPS), said the proceedings would be discontinued.
Sir Norman, 62, who was a chief inspector at the time of the tragedy at the FA Cup semi-final on April 15 1989, had been due to face trial next year.
He was accused of untruthfully describing his role in the South Yorkshire Police response as "peripheral" in a comment to then chief inspector of constabulary Sir David O'Dowd, in 1998, when Sir Norman applied for the job of chief constable in Merseyside.
He was also accused of lying to Merseyside Police Authority when he said he had never attempted to shift blame for the disaster "on to the shoulders of Liverpool supporters".
Sir Norman, of Barnsley, South Yorkshire, was alleged to have lied in a statement issued on September 13 2012, following the publication of the Hillsborough Independent Panel report, when he said he had never offered any interpretation other than that the behaviour of Liverpool fans did not cause the disaster.
He was also accused of misconduct over a a statement released the following day in which he said he had never "besmirched" Liverpool fans.
Speaking outside court, he said: "My involvement in events around Hillsborough has often been misrepresented, even in Parliament. Since then, I have been forced to deny strenuously that I have done anything wrong in the aftermath of the disaster. Today's outcome vindicates that position.
"Six years ago, I was driven from the job that had been my vocation for 40 years, and some commentators, who didn't really know anything about me or the facts, rushed to judgement and predetermined my guilt.
"Something I learned, though, early in my police service, is that no injustice was ever satisfactorily resolved through being unjust.
"There might be a time to say more about my recent experience, but today is not that day."
Family members of those killed in the disaster reacted with disappointment to the prosecutors' decision.
Louise Brookes, who lost her brother Andrew, told The Yorkshire Post that she would be exercising her right to request a review.
She said: "I am extremely disappointed. Not shocked, not surprised, I predicted it."
She said 30 years on, the families were accustomed to the "many twists and turns with Hillsborough".
"You do get used to it, sadly," she said.
Sir Norman was charged after the Independent Police Complaints Commission (IPCC) conducted the biggest criminal investigation into alleged police misconduct ever carried out in England and Wales.
But Mrs Whitehouse told the court that recent developments meant the "state of the evidence has changed" against Sir Norman.
She said one of the two witnesses the Crown relied on for three of the charges, relating to statements he allegedly made blaming Liverpool fans for the disaster, had since died and "significant contradictions" had come to light in the accounts given by the other witness.
Mrs Whitehouse said the remaining charge related to Sir Norman's alleged use of the word, "peripheral" in describing his role in the South Yorkshire Police response, when he applied for the job of Chief Constable of Merseyside Police in 1998 which had now been "partly retracted" by one witness.
The prosecutor said all four of the counts were part of a "narrative" of a "pattern of behaviour" but because the other three counts had been dropped, the "thread has been lost".
She said: "The prosecution case reduced to interpreting the use of a single word 20 years or so ago, elements of this charge can no longer be proved to the high criminal standard."
She added: "Decisions such as these are never taken by one person alone. They are taken after discussion and consideration by a number of experienced lawyers."The same conclusion reached in this case is that the charges should be discontinued."
Paul Greaney QC, counsel for Sir Norman, gave a withering account of the investigation, which, he said, would never have succeeded "for the simple reason he is in fact innocent".
Mr Greaney claimed there had been "political interference" and criticised MP Maria Eagle and investigators.
He said: "Contrary to public understanding, there has never been any suggestion in this failed prosecution that Sir Norman Bettison took part in a cover-up.
"The false understanding that he did so has been fostered, not by the prosecution, but by political figures.
"In 1998 and again in 2012, Maria Eagle MP asserted under cover of Parliamentary Privilege that Sir Norman had been part of a unit that orchestrated a black propaganda campaign to deflect blame for the Hillsborough Disaster from South Yorkshire Police on to the fans of Liverpool Football Club.
"That claim, which Maria Eagle has not been prepared to repeat outside Parliament, is untrue."
Mr Greaney said this was a "myth" and prosecutors had accepted Sir Norman had done nothing of a "criminal nature."
In a joint statement, politicians Steve Rotheram, Andy Burnham, Maria Eagle, Alison McGovern and Derek Twigg said: "We are disappointed to hear this news and we fully support the decision of the families to seek a review.
"As long-standing supporters of the campaign for justice, our thoughts today are with the bereaved families and survivors of the Hillsborough disaster, still re-living that day and its aftermath almost 30 years on. We will continue to support them in any way we can.
"Given the on-going criminal prosecutions, we have nothing further to add at this time."
Five other men, including Hillsborough match commander David Duckenfield, are due to face trial for offences related to the disaster next year.