Thorpe was investigated by the Australian Sports Anti-Doping Authority (ASADA) after a random drug test taken before his retirement last year showed unusually high levels of naturally-occurring hormones.
ASADA chairman Richard Ings told a news conference in Melbourne on Friday that the investigations confirmed Thorpe had not committed an offence.
"The evidence available does not indicate the use of performance enhancing substances by Mr Thorpe and that he has no case to answer," Ings said.
"ASADA considers the matter closed."
Ings said ASADA had reached their conclusion after seeking expert medical and scientific opinion from the Australian Sports Drug Medical Advisory Committee (ASDMAC), the World Anti-Doping Agency (WADA) accredited laboratories in Australia and Canada and the ANZAC Research Institute in Sydney.
"Experts from these internationally respected organisations were unanimous in their opinion that the evidence available does not indicate the use of performance enhancing substances by the athlete," Ings said.
"While the matter has taken some time to resolve, ASADA was absolutely determined to ensure that the results of our examination would leave no room for doubt."
The investigation was launched after a random sample taken from Thorpe in May 2006, shortly after he had undergone surgery to repair a broken hand, showed slightly elevated levels of testosterone and luteinising hormone.
Both substances are naturally occurring and ASADA said it was common for athletes to show slightly elevated levels without any suggestion of an offence.
The swimmer's case became public knowledge in March this year when the leaked test results were published by a French newspaper.
Thorpe, who was tested hundreds of times over a career spanning more than a decade but never failed a test, always maintained his innocence and agreed to co-operate with the investigation.
He said he expected to be cleared of any wrongdoing but claimed the publicity surrounding the case had tarnished his reputation and he planned to take legal action once the case was closed.
"We were pleased that ASADA consulted independent experts from internationally respected organisations and they were unanimous in their opinion that there was no evidence of the use of performance enhancing substances," Thorpe's manager Dave Flaskas said in a statement on Friday.
"We always believed this would be the outcome and Ian's reputation as a fair competitor would be affirmed."
Thorpe was on an overseas holiday and unavailable for comment when the results of ASADA's investigation were released on Friday.
Thorpe's outspoken condemnation of doping in sport had sometimes landed him in hot water and he was once reprimanded by swimming's world governing body when he suggested it was unlikely the sport was completely clean.
He burst on to the world stage as a 15-year-old at the 1998 world championships and went on to become one of the sport's greatest competitors.
He won three gold medals as a 17-year-old at the 2000 Sydney Olympics and the 200 and 400 metres freestyle double at the 2004 Athens Olympics. He still holds the world record for 400 metres freestyle.
Thorpe took a year off training after the Olympics to recharge his batteries but never competed at international level again before announcing in November 2006 that he was retiring because he had lost motivation and wanted to do something else with his life.