Jubilant activists praised the decision which they said was a defence of democratic freedoms at a time when Beijing is ramping up pressure on the self-ruling island.
Thousands of people took to the streets in protest in March 2014 in what became known as the Sunflower Movement, with 200 people occupying the main chamber of parliament for three weeks.
The rallies were triggered by a proposed cross-strait trade pact that critics said had been made in secret and would leave export-reliant Taiwan vulnerable to Chinese influence.
She said protesters were reacting to flaws in the legislative process and the failure of lawmakers to reflect public opinion.
"Those who have power should listen to people's voices and promote their welfare," Chang said.
Taipei's district court had ruled the protesters' actions reflected their right to civil disobedience, clearing them on charges of incitement and interfering with public functions.
But state prosecutors appealed the decision, arguing a lack of legal precedent and consensus for using civil disobedience as a justification for breaking the law.
Protest leader Huang Kuo-chang, now a lawmaker, said Tuesday's judgement reaffirmed Taiwan's freedoms.
"When lawmakers do not carry out their duties properly the people can stand up and resist and their rights are protected," Huang said after the ruling.
He contrasted freedoms in Taiwan with semi-autonomous Hong Kong, where activists have been jailed and political freedoms are increasingly under threat.
"I hope our friends in Hong Kong who are in a difficult situation will not give up. Taiwan will alway stand with you," Chen said after the hearing.
Fears over warming cross-strait ties contributed to the plummeting popularity of Ma Ying-jeou's Kuomintang government and its defeat in the 2016 presidential elections at the hands of the Democratic Progressive Party (DPP).
Relations have since turned rapidly frosty as Beijing-sceptic President Tsai Ing-wen refuses to acknowledge the island is part of "one China".
Days after taking office in May 2016, the DPP government dropped a separate lawsuit against 126 Sunflower protesters for trespassing on cabinet headquarters.
A court spokesman said Tuesday's acquittals were final.