The former bishop had been questioned by gardai during an investigation launched after a complaint by a retired school teacher.
The teacher said he believed the former bishop had endangered children by failing to fully inform gardai of abuse complaints made against priests in the diocese.
The DPP has now ruled that "there is no evidence as to the commission of an offence in respect of the issues raised".
Meanwhile, the report of the Dublin Archdiocese Commission of Investigation into the handling of child abuse complaints in the Cloyne diocese will be handed over to the Department of Justice within days.
It is not yet clear when the report's findings will be made public.
Following the publication of the National Board for Safeguarding Children report (NBSC) in December 2008, the retired teacher lodged a complaint with the North Cork Garda Division.
The complaint was made under the Endangerment of Children Act 2006 and resulted in a full garda investigation.
Commenting on the DPP decision not to prosecute former Bishop John Magee, the teacher said last night said he "was very disappointed by the decision but was not giving up".
"I firmly believe that if a school principal had taken such an approach to child protection that they would be charged with reckless endangerment," he said.
One of the victims whose child sexual abuse was highlighted in the NBSC report said she "wasn't remotely surprised" the DPP hadn't decided to prosecute as he had "repeatedly returned garda files relating to Father B".