But the trio warned it was not a time for celebration because the semi-autonomous Chinese city still faced threats to its freedoms.
Wong, Nathan Law and Alex Chow were jailed in August last year for their role in the mass pro-democracy Umbrella Movement protests of 2014 after Hong Kong's government pushed for more severe sentences.
A lower court had originally given Wong and Law community service orders and Chow a suspended sentence. But after the government's intervention they were jailed for between six and eight months by the Court of Appeal.
All three activists were later bailed pending their appeal.
Chief Justice Geoffrey Ma said Tuesday that the terms given to the trio were "significantly more severe" than the range previously given for unlawful assembly offences.
The judgement in the Court of Final Appeal backed the decision of the magistrate who originally handed down non-custodial sentences, saying she had not "erred in principle" by taking into account factors including the defendants' idealism, their youth and the fact that they had not offended before.
The government's move to seek jail sentences for the activists was seen as further evidence of Beijing's growing influence over the city, with Chinese authorities particularly riled by the emergence of activists calling for independence for Hong Kong.
Wong and Law's political party Demosisto wants self-determination for the city.
Mabel Au, director of Amnesty International Hong Kong, said the court had corrected an injustice.
"The government's vengeful pursuit of harsher sentences led to the trio being jailed and it is right this has now been overturned," she said in a statement.
"All politically motivated prosecutions aimed at silencing those promoting democracy in Hong Kong must be dropped."
But while Tuesday's judgement found in favour of the activists, it also endorsed the view of the appeal court that unlawful assembly involving violence must be deterred, saying even the "relatively low" degree of violence in the trio's case could in future lead to jail terms.
"According to the judgement, maybe more activists will be locked up," said Wong outside court after the ruling. "It's not the time for any congratulation or celebration."
Wong, 21, who became the face of the Umbrella Movement, could soon return to prison for another protest-related offence, for which he is currently on bail pending appeal.
Disappearing freedoms
The unlawful assembly charges for which Wong, Law and Chow were jailed related to their involvement in the storming of a fenced-off government forecourt known as Civic Square in September 2014.
That sparked the wider Umbrella Movement rallies which brought parts of the city to a standstill.
The protests called for fully free leadership elections to replace a system where the city's chief executive is selected by a pro-Beijing committee, but failed to win any concessions.
Since then there have been growing signs that China is increasing its control over Hong Kong.
Hong Kong has been governed under a "one country, two systems" deal since 1997, when Britain handed the territory back to China.
The deal allows citizens rights unseen on the mainland, including freedom of speech and a partially directly elected legislature, as well as an independent judiciary.
But the jailing of democracy activists, the disqualification of opposition lawmakers from the legislature at Beijing's request and the lack of answers over the disappearance of five Hong Kong booksellers who resurfaced in the mainland have fuelled concern.
Last month the government banned high-profile democracy activist Agnes Chow from running for the legislature in what activists said was another sign political debate was being shut down.
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