Horwill was cited after the first Test following an incident which left opposing lock Alun Wyn Jones needing stitches in a wound under his eye. He was cited under Law 10.4 b, a player must not stamp or trample on an opponent.
But New Zealand Judicial Officer, Nigel Hampton QC, found that on the balance of probabilities he could not find an intentional or deliberate action of stamping or trampling.
"After hearing all the evidence I could not find that when James Horwill's right foot came into glancing contact with Alun Wyn Jones' face, that he Horwill was acting recklessly," said Mr Hampton.
"I found that I could not reject as being implausible or improbable Horwill's explanation that as he was driving forward with his right leg raised he was spun off balance through the impact of Lions players entering the ruck from the opposite side."
But, following an extensive review of the case, the IRB has decided to step in and use its right to appeal any decision arising from matches under its jurisdiction. In a statement the IRB said: "iven its duty to preserve player welfare at all levels of the Game, the IRB is compelled to further examine potential acts of foul play which either potentially or in reality impact on the preservation of player welfare.
"It is important for the IRB to ensure amongst all stakeholders in the Game that there is full confidence that priority is given to player welfare and the values of the Game.
"The IRB received the full written decision on Monday, June 24 and following a detailed review of the evidence and the written decision (as it does for all Tests under its jurisdiction) has notified the ARU within the 72 permissible hours that it will appeal the case.
"The appeal will be heard by Graeme Mew (Canada) following the second Test between Australia and the British & Irish Lions. Horwill is free to play pending the outcome of the appeal."
The IRB decision led to a furious reaction from the Australian governing body, who said in a statement they were "surprised and disappointed" at the intervention. The ARU claim it is "an unprecedented move" by the IRB and claim
it has never before used its power to set aside a "not guilty" verdict. Its only previous intervention led to All Blacks forward Adam Thomson having a one-week ban increased to two weeks on appeal from the IRB.
"This is an unprecedented step taken by the IRB in what is the most important Rugby event staged in Australia since the 2003 Rugby World Cup," said ARU CEO Bill Pulver.
"While we respect the right of the IRB to intervene, we also respect the knowledge and experience of appointed - and independent - Judicial Officers, and their expertise to consider evidence and reach sound findings.
"James Horwill was cleared of the stamping charge as per the IRB's established judicial process. We are surprised and disappointed that the finding of Mr Hampton is now not only under question but deemed to be 'erroneous'.
"In the midst of an extraordinarily successful series that has been 12 years in the making, the re-hearing process - not even taking into consideration the possible outcomes - has the potential to cause serious disruption to the Qantas Wallabies and the positive atmosphere surrounding the tour.
"ARU in no way condones foul play. However, the process was followed according to IRB regulations and the decision of an independent Judicial Officer handed down. What has occurred subsequently is without precedent."