Attorney Marc Heller said the Lohan faces no formal charges after prosecutors were unable to gather sufficient evidence to prove the case.
"She's totally clear and exonerated," Heller said. "She has nothing but smooth sailing ahead."
A spokeswoman for Manhattan District Attorney Cyrus Vance declined to comment.
Lohan was arrested Nov. 29 on a charge of misdemeanor assault after an encounter with a woman at the club Avenue in the city's trendy Meatpacking District.
Lohan's accuser, Tiffany Mitchell, was "disappointed" that the district attorney's office decided not to prosecute, said her attorney, Gloria Allred.
"Ms. Mitchell is considering all of her legal options in the civil justice system because of what she suffered that night," said Allred.
The district attorney's decision was welcomed news for "Liz and Dick" star, who accepted a plea deal Monday in a misdemeanor car crash case in California.
The troubled 26-year-old actress was sentenced to spend five days in jail, but that time will be served in a locked-down rehabilitation facility. The plea deal also includes 90 days in rehab, 30 days of community labor, 18 months of psychological counseling, a fine and restitution.