The 34-year-old defender was sent off in the final Premier League match of the season when he was judged to have pulled back Michail Antonio as he ran through on goal.
Watford head coach Javi Gracia said the club would appeal the decision and on Monday the Football Association announced it had been overturned.
This now means the defender will be available for Saturday’s FA Cup final against Manchester City at Wembley.
“An Independent Regulatory Commission has today [13/05/2019] upheld a claim of wrongful dismissal regarding Jose Holebas,” an FA statement read.
“The Watford player was sent off against West Ham United in the Premier League on Sunday [12/05/2019] for denying an obvious goalscoring opportunity.”