Damian Hilton, 50, was found guilty of eight counts of assault in April.
Last year during his science class at Terrigal High School, Hilton dared a group of seven students to hold dry ice.
The class was Hilton's first in nine years, and he had been suffering from a mental health condition, the Australian Broadcasting Corp. said.
Magistrate Jennifer Atkinson placed him on the two-year good behavior bond Tuesday.
His release is subject to his conduct and he is subject to being called to court at any time.
Atkinson said the case was complex, but that she concluded Hilton's actions were reckless and not intentional.
She noted that Hilton had no prior criminal history, and acknowledged his mental health condition, ABC said.