The hotel heiress, 29, was arrested in Port Elizabeth after allegedly being caught by police following the quarter final match between Brazil and Holland.
Police confirmed Miss Hilton and her friend Jennifer Rovero had been arrested and said an investigation was under way.
Miss Rovero, who describes herself as a former Playboy playmate, model and actress on her website, was sentenced to a fine of 1,000 rand ($130) or 30 days in jail for smoking a marijuana joint. Her lawyer told the court she was in South Africa to cover the World Cup as a freelance photographer.
Ms Hilton appeared in the court wearing a beige dress and a glittery necklace with her hair in two ponytails, a reporter said.
In court she was addressed as “accused number 1″.
A South African judge later dropped the charges against Miss Hilton, however.
“They were together, but we didn’t have a case against Hilton. The joint was in Rovero’s possession, not Hilton’s,” the prosecutor said.
Her publicist issued a statement calling the arrest a misunderstanding.
“Paris Hilton was questioned today by police in South Africa on allegations of smoking marijuana,” the statement read.
“However I can confirm that the incident was a complete misunderstanding and it was actually another person in the group who did it. The case has been dropped against Paris and no charges will be made.”
South Africa’s Times newspaper reported that Hilton was escorted by police to the Mount Road Police Station in Port Elizabeth shortly before 8pm.
Hilton only arrived in South Africa on Thursday for a World Cup trip.
Since arriving in the host nation on a private jet she has posted about her experience on Twitter.
Writing on her account, she said: “It’s so beautiful here. I can’t wait to go on the Safari this week and see all the amazing animals.”
She later said: “Hey guys, there’s a lot of crazy rumors going around. Just want you all to know the truth. Everything is completely fine. I was not charged or arrested, cause I didn’t do anything. I was assisting the police with the investigation and answering their questions. Everyone was super nice and friendly to me. I love South Africa! Such an amazing place, especially during The World Cup!”
[Post update via the UK Telegraph]