Emma Louise L'Aiguille, 34, and her Nigerian boyfriend at the time Anthony Esikalam Ndidi were arrested and charged in July with carrying more than 3 pounds of methamphetamine in a car suspected of being theirs.
The smuggling and trafficking of methamphetamines is one of Southeast Asia's greatest illegal drugs challenges, the United Nations said, and it carries a mandatory death sentence in Malaysia.
L'Aiguille, a nurse for the elderly, said she had no knowledge of the drugs and the car wasn't hers.
She was being held in a women's prison but walked from a Kuala Lumpur courtroom after prosecution dropped the charges.
L'Aiguille, from Melbourne but living in Perth when she was arrested, must remain in Malaysia to testify in the court case against Ndidi, a report by the Australian Broadcasting Corp. said.
A smiling L'Aiguille left the courtroom accompanied by her defense lawyer Muhammad Shafee Abdullah and was met by her father.
"I'm not taking anything for granted, life, freedom," she said.
"She is a person who is innocent," said Abdullah. "She had no knowledge that in the car, which she was driving, there were drugs.
Her Australian lawyer, Tania Scivetti, said L'Aiguille will remain in Malaysia to attend Ndidi's hearings, which could take up to six months and is a condition of her release, a report by Radio Australia said.
The pick-me-up stimulant methamphetamines are known as "ice," "the devil's drug," "poor man's cocaine," "chalk," "crank" and "crystal" within the illegal drug trade.
It's appeal to drugs gangs is the ease of production, one reason it is the primary illicit drug threat in Asia, the U.N. Office on Drugs and Crime told a conference in Phnom Penh in July.
"Methamphetamine is the most widely used amphetamine-type stimulant drug in the region," Beate Hammond, manager of the United Nations' Global Synthetics Monitoring: Analyses, Reporting and Trends Program, told the conference.
Malaysia's police have been cracking down on organized groups, especially from Africa, believed to be involved in the smuggling of methamphetamines into Malaysia and their trafficking.
In September, police arrested three people, one of them a Nigerian, on suspicion of running a major international drugs smuggling ring.
The Nigerian man, 32, was arrested along with his wife, 31, at their bungalow in Lukut, near the capital's seaside resort area of Port Dickson, after a six-month surveillance operation, a report by The Star newspaper said at the time.
The suspect is believed to have arrived in Malaysia less than a year ago, director of Anti-Narcotics Investigations Department Commissioner Datuk Noor Rashid Ibrahim said.
"With his arrest, we hope to find out more about the syndicate's modus operandi and nab more suspects who worked for the syndicate in the days to come," Ibrahim said.
Malaysia, in conjunction with Thailand, also will focus more on women involved in the illegal drugs trade, and not just as drugs mules, a report by the Malaysian national news agency Bernama said.
Police in both countries have been focusing on men and many women traffickers have gone unnoticed.
This has allowed many women to get involved willingly, Ibrahim told the 35th Malaysia-Thailand meeting on Narcotics Law Enforcement Cooperation in George Town last week.
"This is not a new phenomena because many women are involved willingly and not being forced into such activities," he said.