Mr Lay became a symbol of corporate malfeasance in the United States, in which thousands of people lost their jobs and life savings when the energy giant collapsed in 2001.
The decision to throw out the case was handed down by a federal judge in Houston, Texas.
It will allow Lay's estate to avoid forfeiting tens of millions of dollars that the court had determined were fraudulently obtained.
Enron collapsed with about 40 billion dollars in debt hidden through investment strategies obscured in its financial statements.
The corporate bankruptcy was the largest in US history.
It rattled stock and energy markets and undermined public confidence in the business sector.
Lay was convicted of six counts of fraud on May 25 and died of a massive heart attack on July 5.
Former Enron chief executive, Jeffrey Skilling, was found guilty of 19 of 28 counts of fraud and conspiracy.
He faces a maximum penalty of 185 years in jail and will be sentenced on Monday.
Prosecutors in Lay’s case had argued against his family's request to vacate the sentence.
It claimed "the Lay Estate should not be unjustly enriched with the proceeds of fraud that would otherwise be subject to forfeiture..."
Judge Sim Lake ruled court precedent does not "allow the court to enter an order of restitution against Lay's estate."
Accordingly, he decided to throw out the conviction.