Horwill was cited for stamping on the head of Lions lock Alun Wyn Jones in the first Test in Brisbane but exonerated by New Zealand judicial officer Nigel Hampton on June 23 only for the International Rugby Board to appeal.
Lock Horwill said he had endured a sleepless night while he waited for the verdict and thanked the Australian public for what he described as their overwhelming support throughout the process.
"Very relieved, very relieved," he said. "I feel very vindicated ... I know what happened and I'm glad that the right result was come to in the end.
"I love what I do and it means a lot to me to represent my country and the opportunity to lead it in what is arguably the biggest game in this country since the World Cup final in 2003 is very exciting."
The appeals officer Graeme Mew, who is based in Canada, delivered his decision following a lengthy hearing on Monday and said the appeal would only have been upheld if the IRB had established a clear mistake on Hampton's part.
"There was sufficient evidence upon which a reasonable judicial officer could have reached the decision that was made," Mew said in an Australian Rugby Union statement.
"Accordingly, it could not be said that the judicial officer was manifestly wrong or that the interests of justice otherwise required his decision be overturned."
Mew said the IRB had been right to appeal in their role as promoters of player welfare and protectors of the image of the game, something the governing body said was a major reason for making the appeal.
"While ultimately not proving successful in its appeal, the IRB is satisfied that it took the right approach ... to lodge an appeal in the interests of player welfare as well as to uphold the disciplinary rules," the body said in a statement.
"In light of the potential adverse implications, the IRB is keen to ensure all acts of foul play involving the head should be given serious and thorough consideration.
"This was recognised by the appeal officer in his decision."
The decision to re-litigate the issue had provoked outrage in Australia, with the ARU themselves expressing they were "surprised and disappointed" at the appeal.
"I probably wouldn't want to see another player go through that," Horwill added.
"But it was incredibly thorough, fair and just."
The Test series is tied 1-1 going into the final match at Sydney's Olympic Stadium after the Lions won the first Test 23-21 in Brisbane and the Wallabies the second 16-15 in Melbourne.
The Lions have already lost their captain Sam Warburton to a hamstring injury and a decision to ban Horwill would have been as big a blow, if not bigger, to the Wallabies.
More than just his enthusiastic and emotional leadership - he was reduced to tears after the victory last Saturday - Horwill's absence from a Wallabies pack that had held its own so far in the two Tests would have been a major loss.
Australia are not blessed with great depth in the second row and coach Robbie Deans said he had been forced to contemplate changes and he was delighted to have the "spiritual leader of the group" back.
"Certainly in the group's perspective, they'll be stoked to have James back," the New Zealander said. "He's right at the heart of what we do.
"He's a very forthright man, he's a man of high integrity, his ethics are good, his team mates respect him for all that, his work ethic in games is huge.
"He'll play himself until he can't play any more. And from a players' perspective that's what you want alongside you and that's what they've got."
"And when his legs are gone, he'll still be talking."
- Sports & Recreation