The goalkeeper was dismissed during the first half of Wednesday's 2-1 loss to West Ham, but will miss the remainder of the season after damaging his kidneys during the incident
McGregor was dismissed in the 24th minute of Hull's 2-1 defeat at Upton Park on Wednesday, conceding a penalty following a collision with Mohamed Diame and seeing red after referee Mike Dean had consulted with his assistant.
The goalkeeper, who was substituted and replaced by Steve Harper, will miss the rest of the season with serious kidney damage sustained in the coming together, rendering any potential ban largely meaningless.
But the FA have still opted to overturn the punishment, after an appeal from the KC Stadium side.
An FA statement read: "Hull City's Allan McGregor has had his claim for wrongful dismissal upheld following an Independent Regulatory Commission hearing today.
"McGregor was dismissed for denying a goal scoring opportunity during the game against West Ham United on 26 March 2014.
"The player's standard punishment, therefore, has been withdrawn with immediate effect."
Mark Noble put West Ham ahead from the spot-kick resulting in McGregor's dismissal, with a James Chester own goal giving Sam Allardyce's men the points following Nikica Jelavic's second-half equaliser.