Violette Uwamahoro appeared last week in court in Rwanda's capital Kigali, charged with spreading state secrets.
A judge said there was no evidence to warrant the detention of the expectant mother and released her on bail.
Mrs Uwamahoro, from Leeds, was arrested in February after going to Rwanda for a family funeral.
The prosecution has a window of five days to appeal against the court's decision, Mrs Uwamahoro's lawyer Antoinette Mukamusoni told the BBC.
She was immediately freed after the court's ruling but she is not allowed to leave the country, pending the appeal.
Beyond the issue of bail settled on Monday, prosecutors must prove their case against Mrs Uwamahoro within 30 days or all charges will be dismissed, Mrs Mukamusoni said.
The arrest of the Leeds youth worker had caused an uproar among rights groups with Amnesty International saying she was illegally held without access to lawyers or her family.
Her husband, Faustin Rukundo, an opposition activist, feared she would be denied a fair trial.
He had appealed for the intervention of the British government to secure her release.