The Rugby Football Union decided Tindall "did not intentionally mislead team management" when he said he could not remember his movements that night.
Tindall, 33, also saw his initial £25,000 fine cut to £15,000.
Brian MooreBBC rugby union commentator
What it does say is that Rob Andrew, who is in charge of the elite rugby department, was over-ruled by somebody who did not have anything to do with rugby and, therefore, does not have the authority he is supposed to have. It is another in a long line of silly decisions that are making rugby union look daft. Like a lot things, it has been wrong from start to finish.
The decision was taken by acting RFU chief executive Martyn Thomas, who said that while Tindall's behaviour had been "unacceptable", "mitigating factors" had not been sufficiently considered.
Thomas added that Tindall had been "relying on other people's versions of events which were relayed to him" about the night in question.
The Rugby Players' Association (RPA) welcomed the decision to reinstate the former captain, who has won 75 England caps.
"Whilst we still believe the fine is excessive and disproportionate to the factual events of that night in Queenstown, we are relieved that Mike has been reinstated into the full England EPS Squad," said the RPA.
"We have always maintained that the original judgement was misguided and mishandled and it is our assertion that Mike has been unfairly treated as a scapegoat on this matter."
The initial sanction was handed down earlier this month by RFU elite rugby director Rob Andrew and legal and governance director Karena Vleck.
“This decision [the successful appeal] does not prevent those deciding the composition of the EPS squad from taking into account this incident [at the World Cup] when making that decision”
Martyn ThomasActing RFU chief executive
Tindall, who is married to the Queen's granddaughter Zara Phillips, was told that his behaviour was "unacceptable" and that he had misled the England management by not telling them he went to another bar.
During the World Cup, CCTV pictures of Tindall with a woman in a bar were published in newspapers, but the player initially denied claims he had gone to a second bar with the woman.
And acting RFU chief executive Thomas said he felt mitigating factors did not appear to have been taken into account "to the extent that they might otherwise have been".
Thomas added: "There was no evidence of any suggestion of sexual impropriety of any nature with the woman in question, and we accept the fact that she is a family friend who he has known for a long time.
"Mike expressed deep regret during the appeal meeting about his behaviour, and that he had apologised to [former England manager] Martin Johnson and the team for the events which unfolded as a consequence."
But Thomas said Tindall's behaviour had fallen "way below that to be expected of somebody of his calibre and experience".
And Thomas warned that the player's conduct in New Zealand could be a factor in whether he is included when the new EPS squad is announced on 1 January.
"This decision [the successful appeal] does not prevent those deciding the composition of the EPS squad from taking into account this incident [at the World Cup] when making that decision," confirmed Thomas.
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