The 26-year-old missed the last few games of the 2015/16 campaign, most notably the Europa League final, after being hit with an initial 30-day suspension.
The suspension came after Sakho tested positive for a 'fat burner', which supposedly contained a banned substance.
However, UEFA's control, ethics and disciplinary body has dropped the case following a lengthy investigation.
A statement issued on Liverpool's official website read: "Liverpool Football Club welcomes today's decision from UEFA to dismiss the case against Mamadou Sakho, confirming that he did not commit any doping violation.
"We are pleased for Mamadou that he can now resume his playing career."
Sakho, meanwhile, expressed his relief after the news was confirmed. He said: "I am happy that this is finally over.
"It's been a difficult time for me but I knew I had done nothing wrong. I am looking forward to getting back in the team and playing again."