In May, a lower court convicted him of culpable homicide and sentenced him to five years in jail for driving over and killing a man sleeping on a pavement.
But the appeals judge ruled there was not enough evidence.
Khan is one of Bollywood's biggest stars, appearing in more than 80 Hindi films, and has a huge fan following.
It was only when the judge insisted that Salman Khan must be present before the verdict was read out, that the actor hurried to the court in south Mumbai on Thursday, the BBC's Yogita Limaye reports from Mumbai.
"The appeal is allowed and the decision of the trial court is quashed and set aside. Salman Khan is acquitted of all charges," news agency AFP quoted the Bombay high court judge Anil Ramchandra Joshi as saying.
The prosecution "failed to establish [the charges] beyond reasonable doubt", the judge added.
The actor, surrounded by his family members, broke down after hearing the verdict, the Press Trust of India reported.
He tweeted his thanks to his supporters: