Dominic "Mick" Gatto has been cleared of the murder of Andrew "Benji" Veniamin at a Carlton restaurant last year.
Gatto had pleaded not guilty, claiming he acted in self-defence after Veniamin, 28, pulled a gun on him.
Gatto, a former professional heavyweight boxer once ranked second in the state, admitted shooting Veniamin, 28, twice in the neck and once in the head at the rear of La Porcella restaurant in Carlton, but said he did so in self-defence.
The key question facing the jury was which of the two men carried the lethal revolver into the restaurant.
Justice Philip Cummins said that to secure a murder conviction against Gatto, the prosecution had to prove beyond a reasonable doubt that Veniamin produced the gun.
He said that there was no dispute that if Veniamin produced the gun, then Gatto was entitled to act in his self-defence.
"It really comes down to ... who had the .38?" Justice Cummins said.
Veniamin was suspected of at least four underworld murders, but Gatto told his trial he believed Veniamin had killed at least six, and possibly eight people.
"I still believe if it was anyone else in my position, they'd get a key to the city. It's just unfortunate that it's me," Gatto said.
Before his trial for the shooting of Veniamin, Gatto had been a prominent mourner at the underworld funeral of Jason Moran, and a pallbearer at the funeral of his close friend and suspected underworld heavy, Graeme "The Munster" Kinniburgh.
Gatto, 49, and Veniamin had been on apparently friendly terms, referring to each other as "buddy", "champ" and "mate" until the late-night shooting of Kinniburgh outside his Kew home on December 13, 2003, drove the wedge of suspicion between them.
Despite electronic police surveillance clearing Veniamin of that murder, Gatto remains convinced he was close to Kinniburgh's killers, if not directly involved himself.
Veniamin was the 23rd person killed in the so-called underworld war.
His death was followed eight days later by that of Lewis Moran whose son Jason and stepson Mark were killed before him.
The jury retired at 11.30am yesterday.
It reached a verdict just before noon today, but it was about 40 minutes before it became known.
The judge had allowed time for people to pass through the tight security screening operating on the courtroom entrance.
Gatto appeared relaxed and cheerful as he waited for the judge to appear on the bench.
He leant over the dock to talk to his family and also acknowledged other supporters in the gallery above him.
Gatto, dressed in a dark suit, striped shirt and plain tie, seemed emotional as the jury foreman delivered the verdict in a strong voice.
Gatto placed his hand over his heart immediately after hearing he had been found not guilty.
His family and friends reacted with yells of joy and relief, in defiance of the judge's instructions.
Before the verdict was delivered, Justice Cummins had appealed to them not to express their emotions until the jury had left the courtroom.
Gatto twice said "thank-you" to the judge as he was told he was free to go.
He was mobbed by family and supporters as he left the court.
He was first embraced by his wife and then by other relatives and a strong contingent of supporters.
He spoke only briefly.
"Thank God for the jury system, thank God for [his lawyer] Robert Richter."
Gatto said an innocent man had been vindicated.