Chief executive Anthony O'Sullivan, his deputy Nigel Barnett and head of legal services Daniel Perkins were first arrested in 2013.
They have been suspended on full pay since, with leader Keith Reynolds saying the council will now seek to recover the £1m cost.
The Crown Prosecution Service (CPS) said it respected the court's decision.
Mr Reynolds said "serious questions" must be asked about the investigation.
Mr O'Sullivan was first arrested in March 2013, followed by the other two in July that year.
They were all charged with misconduct in public office, with a trial date set for November 2015 at Bristol Crown Court.
But a judge has now dismissed the case.
A spokesman for the CPS said: "The court today acceded to a defence application to dismiss the case against all three defendants and we respect that decision.
"This was a complicated, wide-reaching and lengthy investigation into serious allegations against council employees.
"CPS South West's Complex Casework Unit took the decision to charge the three defendants following extensive consultation with the police. Since that time the prosecution team has pursued the case within the proper judicial process."
The three officers will now remain suspended while the council "deals with the matter in accordance with its own procedure".
Mr Reynolds said many people will be "concerned and frustrated" about the process.
"There are serious questions to be asked of the CPS about the length of time taken and we will be seeking to recover the salary costs of the suspended officers which are now in excess of £1 million," he said.
Caerphilly MP Wayne David said he is "appalled" by the investigation and will raise the matter in parliament.
Misconduct charges against three senior Caerphilly council officials have been dropped, the local authority has said.