Sarah Forsyth, 30, took the public school to an employment tribunal after her contract was not renewed.
The tribunalyesterday upheld Ms Forsyth's claim that she had been bullied by Eton's head of art, Ian Burke. But it rejected her allegations that Mr Burke had ordered her to help Prince Harry cheat in his AS-level art by completing his written work for him.
It also criticised as "unprofessional" her decision to secretly record a conversation with the prince on his way to his final exam to try to support her claim.
Ms Forsyth brought the case after the school, which charges £23,688 a year, decided not to renew her contract after the summer of 2003. She also accused Mr Burke of bullying her and giving improper assistance to pupils during exams.
At her hearing in May, Ms Forsyth claimed she had written most of the text of the prince's AS-level art coursework journal, something she said was "unethical and probably constituted cheating". She also claimed Mr Burke "touched up" aboriginal-inspired artwork which was displayed to the media as an example of Prince Harry's work when the prince finished his time at Eton.
The prince has strenuously denied any suggestion that he cheated and an investigation by the examination board Edexcel found no evidence of any improper behaviour.
In its 40-page judgment, the tribunal said it was for the exam board to rule whether cheating had occurred. While the report described Ms Forsyth as consistent and "truthful" on the whole, it rejected her allegations about Prince Harry.
It ruled that her relationship with Mr Burke was so bad that it was not plausible that he would have tried to enlist her help in any attempt to cheat. It concluded that her account of the help she had given the prince was muddled and that Mr Burke's story was more believable.
She claimed she had written a sample answer for the prince to use as a guide which, in her account, was given to Prince Harry, cut up and stuck in the journal.
The tribunal sided with Mr Burke, who said that Ms Forsyth had not written the piece on her own but simply sat with Prince Harry and suggested vocabulary.
However, the panel was critical of Mr Burke and said its "inevitable conclusion" was Ms Forsyth's dismissal had been unreasonable. The panel said: "He did undermine and bully her."
Anthony Little, Eton's headmaster, was criticised for failing to look at the case fairly. The school was criticised for failing to produce any written "capability procedure" to the tribunal.
A spokesman for Eton said the school regretted its employment procedures had not been "up to scratch" but said it was pleased the tribunal had rejected the "publicity-seeking" allegations regarding Prince Harry.
He added the school would be calling for the tribunal to award no compensation to Ms Forsyth, arguing she would have been dismissed for secretly tape-recording a conversation with a pupil.