Spanier was set to begin serving a two-month prison sentence on Wednesday on one count of endangerment of the welfare of a child, according to CNN affiliate WNEP.
But on Tuesday Judge Karoline Mehalchick vacated his conviction because it was based on a criminal statute that did not go into effect until after his conduct was alleged to have taken place.
The child endangerment statute was from 2007, while his conduct took place in 2001, according to court documents.
The Attorney General's office has received the court's opinion and is reviewing it, according to spokesman Joe Grace.
The state has 90 days to retry Spanier, according to court documents.
Graham Spanier was president of Penn State University from 1995 to 2011, where he was one of the nation's highest-paid university presidents.
He was fired in 2011, four days after Sandusky, Penn State's former defensive coordinator, was arrested for the sexual abuse of young boys over a period of at least 15 years.
Sandusky was found guilty for the abuse of 10 victims in 2012.
Emails recovered in an internal investigation first reported in 2012 show that two of the cases were discussed by Spanier and two other administrators in February 2001.
In the emails, the three allegedly discussed plans to tell Sandusky to seek professional help. They also allegedly planned to inform him that his "guests" -- children Sandusky brought on campus -- would no longer be allowed to use Penn State facilities.
In a sentencing memo filed in Dauphin County court, prosecutors said Spanier has "shown a stunning lack of remorse of his victims" and called for him to be punished for "choosing to protect his personal reputation and that of the university instead of the welfare of children."
"Spanier was the ultimate decision-maker when it came to reporting Sandusky," prosecutors wrote.
Before Spanier's sentencing, his attorney Sam Silver noted that more than 200 letters from college presidents, deans, professors, clergy members and others were submitted in support of Spanier. He said Spanier "devoted a substantial part of his career to the welfare of children, youth, and families."
Spanier was arrested in 2012, convicted in March 2017 and sentenced three months later.
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