The city of Cambridge issued a statement saying the arrest "was regrettable and unfortunate" and police and Gates agreed that dropping the charge was a just resolution.
"This incident should not be viewed as one that demeans the character and reputation of Professor Gates or the character of the Cambridge Police Department," the statement said.
Supporters say Gates - the director of Harvard's W.E.B. Du Bois Institute for African and African American Research - was the victim of racial profiling.
One of them, the Rev. Jesse Jackson, was unsatisfied with the resolution.
"The charges have been dropped, but the stain remains. ... Humiliation remains," Jackson said. "These incidents are so much of a national pattern on race."
Officers responded to the home Gates rents from Harvard after a woman reported seeing "two black males with backpacks on the porch," with one "wedging his shoulder into the door as if he was trying to force entry," according to a police report.
Gates' lawyer, fellow Harvard scholar Charles Ogletree, said the professor had returned from a trip overseas with a driver, found his front-door jammed and had to force it open. He was already inside, calling the company that manages the property, when police arrived.
Police said the 58-year-old Gates was arrested after he yelled at an officer, accused him of racial bias and refused to calm down after the officer demanded Gates show him identification to prove he lived in the home.
Ogletree said Gates showed his driver's license and Harvard ID - both with his photos - and repeatedly asked for the name and badge number of the officer, who refused. He followed the officer as he left his house onto his front porch, where he was arrested.
According to a police report, Gates had refused to come outside to speak with an officer, who told him he was investigating a report of a break-in, reports CBS station WBZ in Boston.
"Why, because I'm a black man in America?" Gates said, according to the report written by Sgt. James Crowley.
Gates declined immediate comment Tuesday, and Ogletree did not immediately return a request to comment on the charge being dropped.
Gates joined the Harvard faculty in 1991 and holds one of 20 prestigious "university professors" positions at the school. He also was host of "African American Lives," a PBS show about the family histories of prominent U.S. blacks, and was named by Time magazine as one of the 25 most influential Americans in 1997.