Michael Graves had been accused of assaulting Castle-Hughes following an Oscars function in Auckland on February 28.
Mr Graves, 22, appeared in Auckland District Court today where police withdrew the charge of male assaults female after "taking a routine review" of the file.
"Witness accounts have become inconsistent. There was no clear and concise account of what happened," the prosecuting sergeant said.
After his first court appearance, Mr Graves told APNZ the pair had been arguing while driving to get some food.
Castle-Hughes then tried to jump out of the car while he was driving, he said.
The car was swerving while Mr Graves tried to pull her back inside the moving vehicle, ripping her clothes.
The police were called and Mr Graves was arrested. He spent the night in jail and police laid a charge of assault against him.
In court today Mr Graves' lawyer Ron Mansfield said there was information from Castle-Hughes and his client but he did not wish to discuss the circumstances in open court.
"While the defence acknowledges that there was restraint - there was restraint for good reason.''
Mr Graves declined to comment as he left court.
He and Castle-Hughes have dated on and off for over a year.
They broke up following the incident but were reportedly seen partying together in an apparent breach of his bail conditions.
Graves was reportedly at the Oscar-nominated actress' 22nd birthday celebrations in Auckland last weekend and was at her side for a birthday dinner at Nishiki Restaurant in Freemans Bay.The February incident was not the first time the pair have had a run-in with police.
In March last year, Castle-Hughes was taken away in handcuffs from an Auckland nightclub following a fight.
Mr Graves reportedly came to the defence of his girlfriend when another patron made a derogatory remark about her role in Whale Rider. Neither was charged.
In 2010, Castle-Hughes split with Bradley Hull, the father of her 4-year-old daughter, after seven years together.
