With a packed courtroom looking on, Judge Joseph Weatherby set aside Masters' conviction and vacated his life sentence.
"The court has reviewed the motion and the court grants the motion to vacate the conviction and sentence and orders the release of the defendant," said Weatherby.
The crowd in the courtroom then erupted in cheers.
Masters spent the last nine-and-a-half years in prison for the 1987 murder of Peggy Hettrick in Fort Collins. He was convicted in 1999.
Masters walked out of the courtroom doors wearing a dark suit, a gold necktie and a look of relief. During a press conference Masters said his legal team pooled their money to buy him the suit and tie.
His family and friends hugged and kissed Masters. Many cried while at the same time smiling.
"I'm a little overwhelmed here so bear with me," Masters said to the media outside the courtroom. "I just want to thank my family and my friends who stuck with me all these years. Without their support I don't know if I could have made it through this. I want to thank the media who finally told my side of the story this summer. And that's about all I have to say."
"We'd also like to acknowledge Tim's family," said Masters' attorney David Wymore. "You know, they've endured anguish, humiliation, frustration over many years over having Tim convicted unjustly and having him in prison for as long as he has been."
9Wants to Know Reporter Paula Woodward was with Masters as he traveled from the jail to the courthouse on Tuesday morning. At that time, he said he still didn't believe he could be released.
"No, I still don't," he said. "It's not real yet."
Masters said he did not sleep well during his last night in jail.
"I got about five hours of sleep last night, which wasn't too bad considering how it's been going," he said.
Masters says he is not sure about his plans for the future, but talked about going back into aviation. Masters served in the Navy for eight years following high school. He was an aircraft mechanic and worked for Learjet as a mechanic when he was arrested in 1998.
"Aside from seeing my family, I have no plans," he said.
"It was so great to put on civilian clothing for the first time since my trial," Masters said about the suit he wore. "When I put them on I put them on really quick and it was like, 'Damn, I don't want to sit down.' I don't want to wrinkle them or nothing. It was pretty emotional because I haven't worn real clothes since 1999."
As he got out of the car and walked into the courthouse, he was not wearing handcuffs.
"This is the first time I'm going to the courthouse without shackles and handcuffs on," said Masters.
"It's becoming more real," he said as he walked. "But it's still like I'm walking in a haze."
After the judge vacated the guilty verdict and Masters left the courthouse, he went to a party with his family.
For former Fort Collins Police Det. Linda Wheeler-Holloway and others who have worked for years trying to free Masters, Tuesday was a relief.
"It's definitely the happiest day of my career. Biggest day in his life. It's mutual," she said.
The Larimer County District Attorney now must decide whether or not to dismiss all the charges against Masters. Monday, he promised to work quickly to make a determination.
Masters' attorney entered not guilty pleas to any possible charges. A $200,000 personal recognizance bond was issued in the case. Masters is due back in court on Feb. 5 when he will learn if the prosecution will file any new charges in the case, but a legal analyst says new charges are unlikely, given the DNA evidence which points to another suspect.
The special prosecutors from Adams County, who were assigned to Masters' appeals process, recommended Masters' release last week after a new DNA analysis linked DNA found on Hettrick's body to one of her ex-boyfriends.
The finding followed hearings throughout 2007 in which Masters' attorneys showed that the prosecution in the 1999 murder trial withheld significant information from the defense.
Masters also told 9NEWS he hopes some day Hettrick gets justice.
His trial attorney, Erik Fischer, who testified in several of the recent hearings says Tuesday's ruling does not mean it's over.
"I want somebody to come out and take responsibility for misconduct and I want it cleaned up. I want this to never happen again in any case," said Fischer.
Click here to read more on the investigation.
The special prosecutors from Adams County said on Tuesday afternoon they did not want to address the concerns about possible misconduct during the 1999 trial when deciding whether to ask for Masters' release.
"The problem is that, does that mean Mr. Masters would have to have stayed in custody while we heard those other issues when it became clear to us that he deserved a new trial because of the DNA," said Adams County District Attorney Don Quick.
Masters is now just looking to the future.
"I'd like to take a drive in the mountains too," he told 9NEWS. "This will finally be over for me when I stop having dreams about being in prison. You go through an adjustment when you first go in where you have dreams that you're out and then dreams that you're in."
"Who are you Tim?" Woodward asked him Tuesday morning.
"I don't know," he replied. "That's still a tough question."
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