Ten Protestant workmen were killed when their minibus was ambushed in the south Armagh village in January 1976.
A file was passed to the PPS in August last year following the arrest of the suspect in Newry, County Armagh.
A palm print found on a van used in the murders was believed to belong to him.
However, on Thursday, the PPS said that "following careful consideration of the evidence", it had decided not to prosecute him.
The coroner is now giving consideration to the scheduling of dates for the inquest to recommence.
No one has been convicted for the Kingsmills atrocity.
The victims - textile factory workers - were shot dead when an IRA gang ambushed their mini-bus in 1976 near the County Armagh village of Kingsmills.
After checking their religion, the gang ordered one Catholic colleague to leave.
The 10 men killed were John Bryans, Robert Chambers, Reginald Chapman, Walter Chapman, Robert Freeburn, Joseph Lemmon, John McConville, James McWhirter, Robert Samuel Walker and Kenneth Worton.
Only one man survived the shootings - Alan Black, a 32-year-old father-of-three at the time.
He was seriously wounded and spent months recovering in hospital.
Outlining the PPS decision, casework assistant director Michael Agnew said: "We have given careful consideration to all the evidence currently available and have applied the test for prosecution.
"We have concluded that there is no reasonable prospect of a conviction, based on the available evidence and that the test for prosecution is therefore not met."
The sole survivor of the atrocity, Alan Black, expressed disappointment that no-one has been held to account for the murders.
However, he added: "At the same time, it lets us get on with the inquest, so maybe we'll get a few more questions answered through the inquest process.
"The PPS have really explained pretty well what they went on and how they made the decision and I'm reasonably satisfied that it was all above board.
"A policeman came to the door early this morning and handed me an envelope containing their decision and how they came to it.
"They seem to be pretty thorough about it all and I can understand why they didn't go forward with this prosecution."
Asked if he believes justice will ever be served on those who killed the workmen, Mr Black replied: "That is a question I cannot answer, unless the gunmen take an attack of conscience and come forward, I doubt we will get all the truth, but we may get some. I am hopeful that we will get some answers."
Mr Agnew said that the families of those murdered had been informed of the decision and the reasons for it, and that the PPS had offered to meet them "to answer any further questions that they may have".
"We are also conscious that inquest proceedings are currently adjourned to allow for any criminal matters to be concluded and accordingly have advised the coroner of this decision," he added.
The Public Prosecution Service (PPS) has decided not to prosecute a man arrested last year in relation to the Kingsmills massacre.