The prosecutors in the western city of Mainz said they had not found sufficient evidence to continue the inquiry against Jan Boehmermann.
In March, Boehmermann recited a satirical poem on TV which made sexual references to Mr Erdogan.
Mr Erdogan then filed a complaint alleging that he had been insulted.
In a statement on Tuesday, the prosecutors said that "criminal actions could not be proven with the necessary certainty".
