85-year-old Mubarak and his sons Alaa and Gamal are charged with squandering 1.1 billion Egyptian pounds in public funds for renovation of their own private residences instead of official presidential palaces.
Judicial officials said there were no longer any grounds to hold Mubarak because of the expiration of a two-year legal limit for holding an individual in custody pending a final verdict.
The criminal court in Cairo ordered that Mubarak's sons would stay in custody, unlike their father.
Mubarak also faces charges connected to the killing of over 800 protesters during the 18-day uprising in 2011 against his rule.
Former Prosecutor General Talaat Abdallah had referred Mubarak and his two sons, Alaa and Gamal, to trial over charges of seizing general budget allocations devoted for the renovation of presidential palaces.
The Administrative Control Authority said that Mubarak abused his power as president for profiteering and acquiring huge sums from the state budget to perform fake construction at the presidential palaces.
The money was instead alleged to have been directed to his private villas, Ahram Online reported.
Once disclosed, media referred to the case as the biggest instance of corruption under the former leader who was ousted after three decades in power in 2011 over massive popular protests during the Arab Spring.
The criminal court today returned the case to prosecution services in order to add new defendants.
Mubarak had been released pending investigations over other charges but has remained in custody as he is still facing trials over multiple other charges of murder and corruption, including this case.
Mubarak has been held since his guilty verdict last year.
After months spent in a military hospital, a public prosecutor sent him back to prison in April.
Mubarak's health has been a bone of contention during his trial and incarceration. He suffered a heart attack after relinquishing power and had maintained that he was physically unfit to stand trial.