The case began in 2010 and became highly charged because many believed it symbolized perceived corruption among Spain's elites - including the royal family.
When testifying to the court last March, Princess Cristina said he had known nothing of her husband's business dealings.
Urdangarin was accused with his former business partner, Diego Torres, of embezzling about six million euros ($6.4 million) in public funds. Cristina was fined 265,000 euros ($282,000) for benefiting, albeit unknowingly, from her husband's ill-gotten gains.
Although the younger sister of the King, Cristina de Borbon, was absolved of charges against her, she will have to pay a fine of 263,000 euros (280,000 USA dollars) jointly with her husband Urdangarin.
Her husband, however, Inaki Urdangarin, was given a jail sentence of six years and three months for syphoning off millions of euros between 2004 and 2006 from a foundation he headed in the island of Majorca.
His wife, Princess Cristina, the sister of King Felipe VI, was found not guilty of being an accessory to tax fraud. There was no immediate comment from Felipe and Queen Letizia, who received news of the ruling during a visit to a museum in Madrid with the Hungarian president.
"No one is above the law", said a spokesman of Prime Minister Mariano Rajoy's conservative government on Friday.
Princess Cristina could have faced eight years in prison if she had been convicted of fraud over her 49-year-old husband's work with the non-profit Noos Institute sports foundation.
Among the companies they used was Aizoon, a real estate consulting company jointly owned by Cristina and Urdangarin.
After her 1997 fairytale marriage to Urdangarin, Princess Cristina was constantly in the celebrity spotlight and won praise for having a salaried job.
"If we believed in the judicial system when the princess was made to sit in the dock, I think citizens can trust in it when she's absolved", Roca told reporters in Barcelona.
The couple, reported to be in Geneva, was not present for the verdict.