The seven-year-old girl, known as CP, was born with severe brain damage and suffers from learning, developmental, memory and behavioural problems.
A council in the North West of England had hoped to claim criminal injuries compensation for the child.
Her mother had reportedly consumed half a bottle of vodka and eight cans of lager daily during her pregnancy.
She was warned that her excessive drinking could have severe consequences for the health of her unborn child, but did not change her habits.
The girl’s lawyers had argued that the mother was guilty of poisoning her foetus, and that the girl should receive compensation in common with other victims of crime.
But appeal judges ruled the mother had not committed a criminal offence.
Charities had warned that the case could lead to the criminalisation of women’s behaviour during pregnancy, and welcomed the verdict.
Ann Furedi, chief executive of the British Pregnancy Advisory Service and Rebecca Schiller, co-chair of Birthrights, said: “This is an extremely important ruling for women everywhere. The UK’s highest courts have recognised that women must be able to make their own decisions about their pregnancies.
“Both the immediate and broader implications of the case were troubling. In seeking to establish that the damage caused to a foetus through heavy drinking was a criminal offence, the case called into question women’s legal status while pregnant, and right to make their own decisions.
“Any ruling which found that drinking while pregnant constituted a ‘crime of violence’ could have paved the way to the criminalisation of pregnant women’s behaviour – an alarming prospect given the ever expanding list of activities women are warned may pose a risk to the health of their baby.
“We must find a way to ensure that the small number of children born with this condition have the resources they need to live their lives to the full without resorting to criminalising their mothers.”