High Court judge Mr Justice Toulson ruled that hypnotism did not cause schizophrenia.
The judge dismissed a pounds 200,000 damages claim brought by Christopher Gates, an unemployed french polisher, against Mr McKenna, which alleged that his stage show at a High Wycombe theatre in March 1994 triggered the onset of the illness.
Mr Gates, 30, of High Wycombe, said the show, in which he took part for more than two hours, left him fearing for his life, too scared to take a shower and hearing secret commands broadcast from the television soap Coronation Street.
Friends and colleagues said he became moody and unpredictable - giggling when told he might lose his job - and he was subsequently admitted for a month in a psychiatric unit where schizophrenia was diagnosed. He lost his job in 1995 and has not worked since. Mr Gates had blamed this chain of events on Mr McKenna's show when he was hypnotised to speak in an alien tongue, could see people naked and was attacked by an animated broom.
This was rejected by Mr Toulson who decided his schizophrenia was organic in nature and not a result of suggestion.
He said it was "perfectly understandable" that Mr Gates should have believed that his sudden descent into schizophrenia was caused by his hypnotic experience but his "misfortune in developing the disease" was of "natural origin".
The ruling was welcomed by Mr McKenna, who estimated that the case had cost him pounds 1m in lost business and sponsorship. He will continue filming for his next television series.
He said later: "While we feel great sympathy for Mr Gates and his family, the verdict has proved conclusively that hypnosis was not and could not have been the cause of his schizophrenia."
He said the judge's conclusions would "bring an end to the series of alarmist sensational stories about hypnosis being dangerous".
Martin Smith, solicitor for Mr Gates, said in a statement: "With three eminent professionals, one of them at the cutting edge of research into what happens to the brain during hypnosis, concluding that Chris's illness was triggered by what happened on stage, we thought we had enough to win.
"[The judge] set great store by the fact that there was no evidence before him of similar cases. For legal reasons we were unable to put before the court details of several other cases, none involving Mr McKenna, with which we are dealing, in which other people allege they have suffered damage after taking part in hypnotic shows."
Had they been able to do so, he said, "the outcome might have been quite different. The judge has found that Chris's illness was not triggered by the hypnosis, but he did not find that stage hypnosis is safe".