The extradition was refused on the grounds that Wright is a Portuguese citizen.
He was captured near Lisbon in September after more than 40 years on the run. The FBI tracked him down.
The US wanted him back to serve the rest of his 15- to 30-year sentence for a 1962 murder.
Wright escaped from a New Jersey prison in 1970 and hijacked a US airliner two years later.
"The Lisbon appeals court ruled that he had Portuguese citizenship and will not be extradited," his lawyer, Manuel Luis Ferreira, told the French news agency AFP.
Mr Ferreira also said the statute of limitations had expired.
There has been no comment yet from the US Justice Department.
Murder and hijack
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