The MP was referred to Scotland Yard by the parliamentary authorities in September 2010 after concerns were raised over thousands of pounds of spending on laptops.
But a police spokesman said today: “An initial file was submitted to the CPS on December 23 2011 and further inquiries were generated as a result.
“These further inquiries have now concluded following a decision that no further action will be taken by police.
“This decision has been taken after careful consideration of the CPS advice.”
Mr MacShane had the Whip suspended by the Labour Party when the allegations emerged.
He still faces the resumption of an investigation by Parliamentary Standards Commissioner John Lyon, which was put on hold while police considered the matter.
The expenses case was the last being scrutinised by the Yard for possible criminal action.
Labour said it was lifting Mr MacShane’s suspension with immediate effect.
Mr MacShane is understood to be “very pleased” that the issue has been concluded three years after the original complaint was made.
The Commons authorities referred the matter to the Met 15 months later, and a formal police inquiry was only launched in January 2011.
The decision to take no further action was taken this week following advice from the CPS.