Souad Thabet, 70, was assaulted in May 2016 after rumours circulated in Minya province that her son was dating a Muslim woman.
Prosecutors said they had come to the decision because of a lack of evidence, according to Thabet's lawyer, Eihab Ramzy.
"It's a calamity," Ramzy told The Associated Press about the prosecutors' decision to throw out the case. "The preliminary investigation heard testimonies supporting her account from family members and policemen at the scene."
Thabet said that both her and her family are still unable to return home because of threats by local Muslim extremists.
"The government is allowing the oppressors to walk free on the streets," Thabet told a Christian TV channel, "This is our village that we were born and raised in ... How can we be the victims and not be able to return to our village and homes?"
A second case against the same mob, which accuses them of targeting Christian homes is ongoing.
Christians make up 10 percent of the population of Egypt. The country is 22nd on the Open Doors Watch List 2017 for persecution against Christians.