The appellate court in Perugia threw out the guilty verdicts for Knox and her boyfriend Raffaele Sollecito in October.
The court said Thursday the reason for the reversal was that faulty evidence was used to build the case against them.
Those shortcomings included no murder weapon, faulty DNA, an inaccurate time for the killing and not enough proof that Knox and Sollecito were even at the scene where the crime occurred. The court also said investigators failed to conclusively identify the murder weapon. Overall, the court said the "building blocks" used to construct the case failed or were missing.
British college student Meredith Kercher, 21, was found killed in a pool of blood on her bedroom floor in Perugia, Italy in Nov. 2, 2007. Several days later, Knox and Sollecito, who had just begun dating, were arrested.
They were later convicted in what prosecutors portrayed as a drug-fueled sexual assault. Knox and Sollecito were sentenced to 26 years and 25 years, respectively.
The only elements of the prosecutors case that were proven, the appeals court said, were the charge of slander against Knox, who was convicted of falsely accusing a bar owner of killing Kercher, and the fact that the Knox and Sollecito alibis did not match.
The court said the alibis being out of synch "is very different" from the prosecutors' claim of false alibis.
The proven elements combined, the court said, are not enough to support convictions against Knox and Sollecito.
After the acquittal, Knox returned home to Seattle, Wash. after four years in jail.
Prosecutors argued that a kitchen knife found at Sollectio's house was the murder weapon because it matched wounds on Kercher's body and had traces of Kercher's DNA on the blade and Knox's on the handle.
However, the court-ordered review discredited the DNA evidence, saying there were glaring errors in evidence-collecting and that below-standard testing and possible contamination raised doubts over the DNA traces on the blade and on Kercher's bra clasp.
The defense cast further doubt on the knife, questioning why Knox and Sollecito would return it to Sollecito's home if it had been used in the murder. They maintain the real weapon has yet to be found.
A third defendant in the case, Rudy Hermann Guede of the Ivory Coast, was convicted in a separate trial of sexually assaulting and stabbing Kercher. His 16-year prison sentence - reduced on appeal from an initial 30 years - was upheld by Italy's highest court in 2010.
The Associated Press contributed to this report.