"I am extremely happy and I now have the energy and the zeal to continue my passion of fighting for freedom of expression and human rights in Rwanda", Rwigara told AFP.
The courtroom, packed with diplomats and supporters, erupted in applause as Diane Rwigara and her mother were overcome with tears.
Charges were also dropped against Rwigara's mother Adeline, 59, and four others with whom she had exchanged WhatsApp messages accusing the government of killing her husband, Assinapol Rwigara, who died in a vehicle accident in 2015. "There are still many political prisoners in the country", Reuters reports Ms Rwigara as saying.
The legal woes for both women started after they expressed interest in Kagame's job and Ingabire has been attending Rwigara's trial, although she was not present on Thursday. "I am continuing with my political journey ... because there's still a lot that needs to be done in our country".
USA senators in recent days urged the Rwandan government to drop the charges against her.
She said she will move ahead with her People Salvation Movement, an activist group launched shortly before her arrest to encourage Rwandans to hold their government accountable.
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Those seeking a ban on the film accused it of hurting Hindu sentiments and alleged that it was promoting love jihad . Meanwhile, the state government held a meeting chaired by chief minister Trivendra Singh Rawat late in the evening.
The court also said Rwigara's criticism of the government in the press was an exercise of her freedom of expression, guaranteed by both the constitution and global law.
Amnesty International welcomed the court's decision.
Ms Rwigara, 37, was arrested in September 2017 after her attempt to run in Rwanda's July presidential election was denied on grounds she had allegedly forged signatures of supporters for her bid. "I hope to be cleared of all these made-up charges but I am ready for any outcome", she said, calling the courts unpredictable and lacking independence. Diane Rwigara said that the images were digitally manipulated.
Paul Kagame, the country's towering, beanpole-like president, has been widely praised for his role in providing stability and economic growth after Rwanda's catastrophic genocide in 1994.
A panel of three judges ruled that the prosecution failed to prove that Rwigara had personally forged signatures. "There are still many political prisoners in the country".
President Kagame won the 2017 election with over 98 per cent of the votes, securing a third term in office and extending his 17 years in power.