The court ruled unanimously that Section 497, a 158-year-old law, "perpetuates the subordinate status of women, denies dignity and sexual autonomy, and is based on gender stereotypes".
The law criminalised consensual sexual relations between a man and a married woman without the consent of her husband.
Under the law, a man convicted could have faced up to five years in prison and women could neither file a complaint nor be held liable for adultery .
Section 497 has been criticised by rights groups for depriving women of dignity and individual choice, and treating them as the property of men.
"Adultery can be grounds for civil issues including dissolution of marriage but it cannot be a criminal offence ... adultery might not be the cause of an unhappy marriage, it could be the result of an unhappy marriage," said Chief Justice Misra while reading out the verdict.
The judges deemed the law unconstitutional after Indian businessman Joseph Shine filed a petition last year challenging Section 497.
The Indian government had opposed the decriminalisation of adultery , stating in court earlier that this would erode "the sanctity of marriage and the fabric of society at large".
However, women's rights campaigners welcomed the ruling.