The Reverend James Percival, 66, and Ruth Percival, 29 from Freckleton were arrested on suspicion of child neglect but will not face charges, police said.
They were previously held on suspicion of murder and conspiracy to conceal the birth of a child but also face no further action for those offences.
It followed reports of a woman giving birth to a stillborn baby in 2014.
A post-mortem examination was carried out on the baby but the cause of death remains unascertained.
A spokesperson for Blackburn Diocese said they "note the police decision not to charge the former vicar of Freckleton and his daughter".
"The Diocese has provided pastoral support to the family and will continue to do so as and when required."
Lancashire Police said: "They both answered bail today and, following consultation with the Crown Prosecution Service, have been told they will face no charges."
Det Supt Sue Clarke, who led the investigation for the force's major investigation team, said it had been an "extremely complex and sensitive enquiry".
"We have worked very closely with the Crown Prosecution Service from the very early stages... and we respect the decision they have made not to bring any charges," she said.
Det Supt Clarke said police "recognise the impact that such investigations can have on all those concerned" but were "duty-bound to thoroughly investigate incidents" and stressed that those arrested "have been dealt with professionally and sensitively throughout".
The wife of Mr Percival, of Holy Trinity Church, was arrested on suspicion of conspiracy to conceal the birth of a child but was released with no further action.
A vicar and his daughter will face no further action following the death of a baby boy in Lancashire.