The Kremlin said a presidential decree pardoning Naama Issachar on “humanitarian principles” was effective immediately.
The 26-year-old backpacker was arrested in April at a Moscow airport, where she was transferring en route from India to Israel.
Russian authorities said more than nine grams of hashish were found in her luggage. She was convicted and sentenced to 7 1/2 years in prison.
Israeli Prime Minister Benjamin Netanyahu had appealed to Putin to pardon Issachar.
On a visit to Israel last week, Putin met with Issachar's mother and told her, “Everything will be alright.”