The skipper will now take the field for the must-win third and final Test against the tourists in Sydney on Saturday after officials cleared him - for a second time - of stamping on Lions player Alun Wyn Jones.
"I feel very vindicated by the way that it's gone," Horwill said.
Horwill was cited for allegedly stamping on the head of the lock in the first Test in Brisbane, which the tourists won 23-21.
He was initially cleared of the foul play charge and took the field for Australia's 16-15 win over the tourists in the second Test on Saturday, but the International Rugby Board challenged his acquittal with an independent appeal.
The Australian Rugby Union said Tuesday that independent appeal officer Graeme Mew had dismissed that challenge, which was unprecedented as the IRB has never before intervened to overturn a not guilty verdict against a player.
After a two-and-a-half-hour videoconference hearing and extensive deliberation, Canadian arbitrator Mew upheld the original decision, saying there had been "no misapprehension of law or principle" proven and no evidence that the acquittal was unreasonable.
"There was sufficient evidence upon which a reasonable judicial officer could have reached the decision that was made," Mew said of the original ruling in Horwill's favour.
Horwill learned of Mew's decision during the team's Tuesday morning training session and said he felt relieved that the "right result" had been reached and the team could move on.
He described both hearings as "incredibly fair and thorough".
"It means a hell of a lot to me to represent my country, and not only to represent but the opportunity to lead it in what is probably, arguably, the biggest game in this country since the Rugby World Cup final in 2003," he said.
"So I'm very excited at that opportunity, and now we can focus on the game and that's what important."
Wallaby coach Robbie Deans would not be drawn on the controversy surrounding the appeal, saying the team had "more important - well in our eyes - more exciting events" to focus on.
"We've now got clarity. We can push on with our preparation and give ourselves the best chance of succeeding that we can," he said.
"It was thorough and fair and just - and that's all you seek on these occasions."
Deans said Horwill's inclusion in Saturday's blockbuster third Test in Sydney was a welcome boost to the team and they would be "stoked to have James back".
"He's right at the heart of what we do and you can see what it means to him," said Deans.
"He's a very forthright man, he's a man of high integrity, his ethics are good. His teammates respect him for all of that."
The Lions will be without their skipper, Sam Warburton, for the decider after the flank was ruled out with a hamstring injury.
Mew said the IRB appeal, which drew outrage from the Australian camp, had been appropriate to safeguard player welfare and protect rugby's image and reputation.
Australia's Rugby Union Players' Association (RUPA) welcomed the ruling, saying it had been surprised and disappointed at the IRB's appeal which it described as a "dangerous precedent" with questionable motives.
"RUPA still remains sufficiently concerned with the perceived inconsistencies with the processes and, as such, has raised the matter with the International Rugby Players Association and requested that IRPA raise the matter formally with the IRB," said RUPA chief Greg Harris.