The court was told that Ms Bassey (pictured after the hearing) had slapped and assaulted Ms Levy during a row in a hotel room.
Ms Levy, 44, who had worked for the singer for 15 years, claimed she was sacked after a dispute over working hours, and sued for breach of contract. She told Brentford County Court in west London that Ms Bassey hit her and called her a "Jewish bitch" after consuming a "fair amount of champagne".
Summing up, Judge Marcus Edwards agreed that Ms Bassey had not called Ms Levy a bitch and was not anti-Semitic. He also said that he thought Ms Levy had not been sacked and dismissed her claim for pounds 7,650 loss of earnings. He said he found Ms Levy a "less persuasive witness" than Ms Bassey.
"Generally, I found her not to be as fully frank and helpful as she might be," he said.
After the judgment, which followed five years of legal wrangling, Ms Levy refused to comment to reporters.
Ms Bassey broke down as she gave a statement, in which she said: "It was a matter of considerable distress to me that someone with whom I had enjoyed a close working relationship should have taken this action.
"I have fought the case regardless of cost in order to defend my name and reputation, in order to protect my career, and as a point of principle. Today's judgment endorses and vindicates that decision and I am happy that the matter is now ended."
As she stepped into her car, she threw flowers to waiting fans, who clapped and cheered.