Wheelchair-bound Hubert Zafke had faced 3,681 counts of being an accessory to murder at the concentration camp in Nazi-occupied Poland.
The decision to end the proceedings was widely expected after prosecutors last month said the accused was unfit for trial and the case should be dismissed.
Concerns over Zafke's mental and physical health had led to repeated postponements of his trial, which began in February 2016 in the northeastern lakeside town of Neubrandenburg.
"Because of his dementia he is no longer capable of following a trial," court spokesman Carl Christian Deutsch said in a statement.
Two independent psychiatrists had confirmed the diagnosis, finding that Zafke was incapable of following a discussion or retaining information "for more than a few minutes", he added.
The charges against Zafke focused on a one-month period in 1944 when 14 trains carrying prisoners -- including the Jewish teenage diarist Anne Frank -- arrived at Auschwitz-Birkenau.
Frank, who arrived in Auschwitz with her parents and sister, was later transferred to another camp, Bergen-Belsen, where she died in March 1945, just two months before the Nazis were defeated.
After World War II, a Polish court in 1948 sentenced Zafke to a four-year jail term from which he was released in 1951.
But during his first questioning by German prosecutors in 2014, he denied ever having worked at Auschwitz.
In later depositions, he acknowledged his presence but said he was unaware of the gas chambers and crematoria at the death camp until after the end of the war.
Some 1.1 million people, most of them European Jews, perished between 1940 and 1945 in Auschwitz before it was liberated by Soviet forces.
Zafke was the fourth former concentration camp worker in the dock in Germany in the most recent series of trials, following John Demjanjuk in 2011, Oskar Groening in 2015 and Reinhold Hanning last year -- all convicted of complicity in mass murder.
All were tried using a new standard of evidence: that it was sufficient to work at a death camp to be prosecuted, even without proof of a link to specific deaths.
