Miss Hill, 37, the Guardian's special investigations correspondent was questioned under caution last September by detectives investigating alleged leaks about the phone hacking inquiry.
Her questioning came after a 51-year-old detective constable was arrested on suspicion of passing unauthorised information to the newspaper.
The officer had been working as part of the Operation Weeting team appointed to investigate claims of widespread phone hacking at Rupert Murdoch's News of the World.
Last month the CPS confirmed that the Metropolitan Police had passed the relevant files for prosecutors to consider whether to bring criminal charges against the pair.
But in an announcement this morning, Alison Levitt QC, Principal Legal Advisor to the Director of Public Prosecutions said: "All the evidence has now carefully been considered and I have decided that neither the police officer nor the journalist should face a prosecution."
She added: "I have concluded that there is insufficient evidence against either suspect to provide a realistic prospect of conviction for the common law offence of misconduct in a public office or conspiracy to commit misconduct in a public office.
"In this case, there is no evidence that the police officer was paid any money for the information he provided.
"Moreover, the information disclosed by the police officer, although confidential, was not highly sensitive. It did not expose anyone to a risk of injury or death. It did not compromise the investigation.
"And the information in question would probably have made it into the public domain by some other means, albeit at some later stage.
"In those circumstances, I have concluded that there is no realistic prospect of a conviction in the police officer's case because his alleged conduct is not capable of reaching the high threshold necessary to make out the criminal offence of misconduct in public office.
"It follows that there is equally no realistic prospect of a conviction against Miss Hill for aiding and abetting the police officer's conduct."
However the CPS has written to the Metropolitan Police and the Independent Police Complaints Commission to recommend that they consider bringing disciplinary action against the detective for breaches of data protection.
Following his arrest last year Deputy Assistant Commissioner Sue Akers, the police chief leading the major investigation into criminal activities at the News International paper, expressed her annoyance over the officer's alleged "unauthorised disclosure".
She said: "I made very clear when I took on this investigation the need for operational and information security. It is hugely disappointing that this may not have been adhered to.
"The MPS takes the unauthorised disclosure of information extremely seriously and has acted swiftly in making these arrests."
Miss Hill had been behind a number of exclusive stories about the phone hacking investigation and had reported the names of some of those arrested, sometimes just minutes after people were detained.
Following her questioning, Guardian executives expressed deep concern that the move signified an attempt to criminalise the work of journalists.
Michelle Stanistreet, the NUJ general secretary, said it was "outrageous that an allegation of off-the-record briefings is being treated as a criminal matter". She added that a "vital journalistic principle" was at stake.
"There is a clear distinction between legitimate off-the-record interviews and the illegitimate payment of bribes," she said.
Today's announcement comes after the CPS decision earlier this month to charge the former News International Chief Executive, Rebekah Brooks, and five other people with perverting the course of justice amid claims they tried to cover up the hacking scandal.
A total of 53 people have been arrested as part of the three investigations, Operation Weeting, looking at phone hacking, Operation Elveden, investigating illegal payments to public officials and Operation Tuleta examining allegations of computer hacking.