Sakho, who was then playing for Liverpool, was accused of taking fat burner, Higenamine, but it was later found that the drug was not on WADA’s list of banned substances.
Sakho was handed a 30-day ban from football, causing the former Paris Saint Germain captain to miss the 2016 Europa League final, which Liverpool lost to Sevilla, as well as miss out on the France squad for EURO 2016.
WADA have now conceded that they erred in sanctioning Sakho after the 30-year-old sued them for defamation.
A WADA statement said: "WADA retracts and apologises for the defamatory allegations made in the First Press Statement and the Second Press Statement.
"WADA accepts that it should not have made the defamatory allegations it did in the First Press Statement and the Second Press Statement given that Mr Sakho had been acquitted by UEFA.
"WADA accepts that Mr Sakho did not breach the UEFA Anti-Doping Regulations, did not cheat, had no intention of gaining any advantage, and acted in good faith.
"WADA regrets the damage the defamatory allegations caused to Mr Sakho's reputation and the distress, hurt and embarrassment caused to him. To indicate the sincerity of this apology, WADA has agreed with its insurers to pay Mr Sakho a substantial sum of damages. WADA has also agreed to bear Mr Sakho's reasonable costs."
Speaking outside court, Sakho said: "I feel happy, happy for my family, happy for all my friends, for all the people who were around me during this tough year because it is not easy when you are a professional footballer or athlete.
"This is the worst thing you can be accused of, doping.
"Today is a big day for my story. I think it is important for athletes to have this kind of example and to be careful about everything they are taking."
