Knox collapsed sobbing as the jury in the court of appeal ruled that she was innocent of the murder but found guilty of the lesser charge of slandering a police officer.
The appeal verdict overturns her 2009 conviction for murdering and sexually assaulting Kercher in their shared cottage in 2007. She was sentenced to 26 years in prison and Sollecito given 25 years.
Knox was found guilty of slandering Italian police officers after she claimed they slapped her while questioning her and sentenced to three years, but since she has already served four years of her sentence she will be freed immediately.
She must also pay compensation to bar owner Patrick Lumumba, who she initially blamed for the murder.
The court in Perugia, where the students had lived, ruled that the DNA evidence used to convict Knox was insufficient to uphold the murder verdict.