The move could ease tensions between U.S.-backed President Pervez Musharraf and the opposition party that won last month's parliamentary elections.
An anti-corruption court acquitted Asif Ali Zardari on Friday in the so-called "BMW case" relating to the import of a German limousine.
The court had already dismissed six other graft cases against Zardari, under an order passed by Musharraf last year that was supposed to foster political reconciliation.
"After a struggle of 11 years, the state has failed to prove any case against Mr. Zardari," said his attorney, Farooq Naek.
"After a long darkness in the tunnel, the light has come," he told reporters outside the anti-corruption court in Rawalpindi, near the capital.
Zardari took control of Bhutto's party after she was assassinated in December, making him a key political figure as Pakistan moves toward democracy after years of military rule.
But Zardari's return to politics is eyed with suspicion by some Pakistanis who see him as a symbol of corruption and misrule that nearly bankrupted Pakistan in the 1990s.
He became known among Pakistanis by the nickname "Mr. Ten Percent" for allegedly pocketing kickbacks when his wife was in office. He spent years in jail without being convicted and insists the charges were politically motivated.
Now Zardari's Pakistan People's Party is poised to form a coalition government with the party of former Prime Minister Nawaz Sharif, under whose administration Zardari was jailed.
The PPP won the most seats in Feb. 18 parliamentary elections, routing Musharraf's supporters and triggering calls for the president to step down. Sharif party came in second.
Parliament is due to convene Monday.
The previously dismissed charges against Zardari included illegal payments relating to the construction of a polo ground inside the prime minister's residence and to the purchase of thousands of Polish tractors.
A money-laundering case is still pending against him in Switzerland.