The accuser, a massage therapist, had alleged that Spacey tried to kiss him and forced him to grab his genitals during a session in Malibu in October 2016.
The accuser, who was never identified, went to the Los Angeles County Sheriff's Department, which referred the investigation to the District Attorney's office in July 2018, reports variety.com.
The District Attorney's office has been reviewing the matter since then, and had not made a decision on whether to bring charges at the time of the accuser's death.
The accuser's civil attorney, who had filed suit against Spacey in September 2018, notified Spacey's lawyers that the accuser had died last month. A source said that the accuser died of cancer.
On Monday, Christina Buckley, the head deputy in the District Attorney's sex crimes unit, formally dropped the case.
"During the course of the investigation, the victim passed away. The sexual assault allegations cannot be proved without the participation of the victim. Thus, the case was declined," she wrote in a declination report.
The District Attorney's office had previously declined to file another case against Spacey, noting that the allegation fell outside the statute of limitations.
In July, prosecutors in Nantucket, dropped another case against Spacey, after the accuser invoked the Fifth Amendment during an evidentiary hearing.
( With inputs from IANS )