James Kluppelberg, 46, who was sentenced to life in prison, had maintained his innocence from the start, the Chicago Tribune reported.
The fire killed Elva Lupercio, 28, and her five children, ages 3 to 10, at their home in the Back of the Yards neighborhood.
Cook County prosecutors, who had challenged appeal efforts, told a judge Wednesday they wanted to dismiss the charges.
Sally Daly, a spokeswoman for State's Attorney Anita Alvarez, said the decision to dismiss the charges came after "comprehensive post-conviction reinvestigation" that included hiring an expert to evaluate the forensic evidence. Based on the review, prosecutors concluded the office could not "meet its burden of proof beyond a reasonable doubt," Daly said.
Karl Leonard, an attorney representing Kluppelberg, said his client was surprised by the news.
"He was blown away," Leonard said. "He said he had been praying for it for a long time, and he couldn't believe it was finally true."
The Tribune said a friend who had implicated Kluppelberg later admitted he had lied because he was facing criminal charges.
Kluppelberg's attorneys argued the fire was not an arson. They said advances in science after Kluppelberg's conviction had changed how officials investigated fires.
A 2004 Tribune series examined advances in fire science and showed debunked arson indicators had led to possible wrongful convictions of hundreds, perhaps thousands, of people.