The controversial drawing of the 23-time Grand Slam winner was published after her US Open final defeat in September 2018.
Williams, 37, lost to Japanese player Naomi Osaka but was furious at umpire Carlos Ramos.
Cartoonist Mark Knight for the Australian newspaper the Herald Sun drew Williams having a tantrum in an exaggerated way, which many said depicted her like an ape.
She was shown jumping up and down on a racquet next to a baby’s dummy.
The cartoon prompted complaints to Australia’s media watchdog, the Australian Press Council, over concerns it was offensive and featured racist stereotypes of African-American people.
“The cartoon was just about Serena on the day having a tantrum”
Mark Knight, cartoonist
“Concern was expressed that the cartoon depicted Ms Williams with large lips, a broad flat nose, a wild afro-styled ponytail hairstyle different to that worn by Ms Williams during the match and positioned in an ape-like pose,” the watchdog said.
But in an adjudication released on Monday, the Council said there was “sufficient public interest” in commenting on sportsmanship during a “significant dispute” between Williams and the umpire.
“The council considers that the cartoon uses exaggeration and absurdity to make its point but accepts the publisher’s claim that it does not depict Ms Williams as an ape,” it said.
Instead, it ruled, the cartoonist showed her “spitting the dummy”, which it said was “a non-racist caricature familiar to most Australian readers”.
Harry Potter author JK Rowling was among those who slammed the cartoon at the time, saying it reduced “one of the greatest sportswomen alive to racist and sexist tropes”.
Veteran civil rights campaigner Reverend Jesse Jackson called it “despicable”.
Mark Knight defended his drawing at the time, telling the paper: “The cartoon was just about Serena on the day having a tantrum.”
He went on: “I drew her as she is, as an African-American woman, so this whole business that I am some sort of racist is just made up.”
In the wake of the media storm, the Herald Sun published a defiant front page defending the cartoon, with the headline “Welcome to PC World”.
Speaking after the ruling, Knight said he was “very happy” with the decision, and wouldn’t have drawn the cartoon any differently if he did it again.
“I’m a cartoonist who has always been against racism,” he said, adding: “I’ve drawn cartoons supporting the election of Barack Obama.”
But he said he still hadn’t returned to social media since the international backlash to the illustration.