Michelle Palmer and Vince Acors were convicted and sentenced to three months in prison in October for having sex outside of marriage, public indecency and drunkenness.
The Dubai Court of Appeals upheld the guilty verdict but dropped their prison sentences - though it ruled the couple must still be deported from the United Arab Emirates and pay a fine of about $272 each.
"This is a good result," said Hassan Matter, the couple's Dubai-based lawyer. "This means the law in Dubai is just and shows the judge has a good mind and a good heart."
The two Britons, who are both in their 30s, met at an all-you-can-drink champagne brunch before they were arrested in July. Both previously admitted they were drunk but denied having sex.
The case revealed a fault line between Dubai's expatriate majority and the city's conservative Arab, Muslim minority.
Public displays of affection are illegal in Dubai - a city that has worked hard to cultivate an image as a party hot spot for Western tourists and businesses in the Middle East but has a conservative legal code based on Islamic laws and tribal rules.
The couple's trial prompted at least one Dubai five-star hotel chain to issue an advisory for Western tourists on appropriate behavior.
The Jumeirah Group cautioned guests at the Medinat Jumeirah hotel that "drunken behavior, especially outside licensed premises in the hotel, is punished severely." It also recommended tourists be discreet with displays of affection in public.
"Anything more than a peck on the cheek could offend those around you and even possibly lead to police involvement," the advisory said.