Cahuzac's case was the biggest scandal of Socialist François Hollande's 2012-17 presidency.
Charged with balancing the books and fighting tax evasion, he was found to have hidden 15 million euros in a Swiss bank account.
After at first denying the accusation, he eventually resigned and wound up in court.In 2016 a court sentenced him to three years in jail.
When he appealed, prosecutors opposed any reduction of the term, arguing that his crime was "of exceptional gravity".
In court he said he was "frightened of going to prison" and his lawyer, Eric Dupond-Moretti claimed he was "a broken man" who might commit suicide.
On Tuesday the appeal court reduced his sentence to two years, with two years suspended and a 300,000-euro fine.
Cahuzac "does not deserve prison", Dupond-Moretti declared after the verdict, adding that he would call for a reduction of the sentence.
French law allows for jail sentences of two years or less to be reduced to non-custodial ones.