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The former Alaska governor had sued the newspaper this summer after its editorial board drew a link between an ad from her political action committee to the deadly shooting that left Rep. Gabby Giffords injured in 2011.
But as Manhattan federal judge Jed Rakoff wrote in an opinion dismissing the case, Palin did not have a "plausible factual basis" to claim that the paper had defamed her.
"Responsible journals will promptly correct their errors; others will not," Rakoff wrote.
He continued: "But if political journalism is to achieve its constitutionally endorsed role of challenging the powerful, legal redress by a public figure must be limited to those cases where the public figure has a plausible factual basis for complaining that the mistake was made maliciously, that is, with knowledge it was false or with reckless disregard of its falsity."
The Times editorial, which it published in June after a shooting at a congressional baseball game practice, suggested that Jared Lee Loughner, the gunman in the 2011 Tucson shooting, was incited by the ad from Palin's PAC, which showed crosshairs over Giffords's congressional district and other Democratic districts.
There is no evidence to suggest that Loughner saw the advertisement. The Times issued a correction the next day and amended the text of the editorial online. Palin filed her defamation suit two weeks later.
In dismissing the case, Rakoff cited a lack of proof that The Times had acted with "actual malice" - a crucial element of defamation - when it published the editorial.
"What we have here is an editorial, written and rewritten rapidly in order to voice an opinion on an immediate event of importance, in which are included a few factual inaccuracies somewhat pertaining to Mrs. Palin that are very rapidly corrected," Rakoff wrote.
He added: "Negligence this may be; but defamation of a public figure it plainly is not."