It comes amid a significant rise in the number of migrants attempting to reach the UK in dinghies, following a drop in ferry and lorry traffic.
The CPS said it had presented no evidence against the 11 migrants at a Canterbury Crown Court hearing on Friday.
A twelfth migrant who had not yet been charged is also to have proceedings against them discontinued.
The 12 migrants will be released from criminal custody, but continue to be held in immigration detention.
All were charged with the offence of assisting unlawful immigration, which has been controversially used to jail several asylum seekers who steered dinghies.
A CPS spokesperson said: “We keep all cases under constant review and have decided not to proceed with 12 cases involving small boat pilots as they no longer meet our legal test for prosecution.
“Seven cases involving eight defendants are still active, and nothing should be published that could jeopardise the defendants’ right to a fair trial.
“We have been working with law enforcement agencies to develop updated immigration legal guidance, setting out our approach to small boats and other illegal entry cases.”
The cases were dropped because of a Court of Appeal judgment in April, which resulted in the conviction of an Iranian asylum seeker who was jailed for two years being quashed.
Fouad Kakaei then had his conviction overturned at a retrial in May, after being held in prison for 17 months on remand.
He initially pleaded guilty to facilitating illegal immigration by taking turns steering boats full of asylum seekers across the Channel on 24 July and 29 December 2019.
However, Mr Kakaei said he had paid people smugglers for the journeys, had not taken payment himself, and only helped steer because he was “convinced their lives were at risk if he did not assist”.
Aneurin Brewer, Mr Kakaei's barrister from Red Lion Chambers, said the CPS had been unable to prove that he and other migrants had committed an offence or were seeking to enter the UK illegally.
“While it is welcome that the CPS have conceded that these prosecutions should not have been brought, there will be no compensation for the many months these defendants have each been remanded in prison awaiting trial,” he told The Independent.
“There are also a substantial number of previous cases where defendants unaware of the defence developed in Mr Kakaei’s case have pleaded guilty and received sentences of between two and five years’ imprisonment. Those cases will now need to be carefully reviewed and appeals pursued.”
The Home Office has labelled the pilots of dinghies in the English Channel “people smugglers” and positioned their prosecution as a key strategy to reduce crossings.
It has been pushing to criminalise crossings after Priti Patel’s vow to make the route “unviable” was followed by record numbers last summer.
Its immigration enforcement unit is analysing drone footage of small boats to single out migrants to be prosecuted for steering them.
However, a report by the Independent Chief Inspector of Borders and Immigration (ICIBI) said smuggling activity was mostly taking place in France and there were “no organised crime group members onboard the boats”.
In October, a judge found that those who piloted boats did not organise Channel crossings, may be coerced and threatened, and are ultimately “one of the trafficked”.
Judge Rupert Lowe said: “The pilot-migrant in the type of case under consideration here is not in any realistic sense acting as part of a trafficking gang ...he is one of a boatload of migrants who are effectively indistinguishable from one another, except for that fact that he happens to have agreed to steer.”
Charities say asylum seekers have no choice but to attempt dangerous boat journeys because of a lack of legal alternatives, but the government has increased its scope to declare asylum claims from people who have passed through safe third countries such as France inadmissible.
The government’s New Plan for Immigration said: “Contingent on securing returns agreements, we will seek to rapidly return inadmissible asylum seekers to the safe country of most recent embarkation.”
No returns agreements have yet been secured with EU countries to replace the Dublin Regulation, which allowed the transfer of asylum seekers back to countries they had previously passed through until the end of the Brexit transition period.
The Home Office said that French authorities had stopped more than 5,000 people from attempting Channel crossings since the start of this year, and arrested 100 “facilitators” a month on average.
It added it was determined to pursue those responsible for facilitating deadly Channel crossings.