The youngster was controversially shown a straight red card by Michael Oliver during the first half at Molineux.
Lewis-Skelly was punished for a challenge on Matt Doherty after catching the full-back on his ankle as the Wolves full-back attempted to launch a counter-attack.
The controversial decision was not overturned by VAR but has now been rescinded by the FA.
In a statement, the FA confirmed: "An independent Regulatory Commission has upheld a claim of wrongful dismissal in relation to Myles Lewis-Skelly and removed his three-match suspension.
"The Arsenal player was sent off for serious foul play during their Premier League fixture against Wolverhampton Wanderers on Saturday, January 25, 2025."
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As a result, Lewis-Skelly is now cleared to feature in Arsenal's next Premier League match at home to Manchester City on Sunday.
The 18-year-old had been set to serve a three-match ban as a result of the dismissal.
His suspension would have seen Lewis-Skelly miss the upcoming league matches against City and Leicester.
He would have also been unavailable for the Gunners' Carabao Cup semi-final second leg trip to Newcastle.
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It had been the first red card of Lewis-Skelly's career, with the academy graduate having so far only received three yellow cards in 17 senior appearances.
Despite the red card, Mikel Arteta's side went on to beat Wolves 1-0 thanks to Riccardo Calafiori's second half strike.
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The Italian's goal followed a red card for the hosts, with Joao Gomes dismissed in the 70th minute.
As a result of their victory, Arsenal remain six points behind league leaders Liverpool, who have a game in hand.