Testimonies from surviving Tutsis prompted allegations
Tuesday's decision may put in doubt similar attempts in Belgium to try Israeli Prime Minister Ariel Sharon and Palestinian leader Yasser Arafat.
The proceedings were brought under a controversial Belgian law which claims universal jurisdiction in human rights cases regardless of where the alleged crimes are committed.
But the three-judge panel said it could not accept the case because Mr Yerodia was not physically present in Belgium when the case was opened.
Mr Yerodia stood accused of inciting racial hatred among DR Congo's Tutsi minority at the start of the 1998 rebellion, four years after massacres of ethnic Tutis and moderate Hutus in neighbouring Rwanda.
The case had already suffered a setback in February, when the International Court of Justice (ICJ) in The Hague upheld Mr Yerodia's immunity from prosecution in Belgium on the grounds that he was a serving minister when the lawsuit was brought.
After Tuesday's decision, a spokesman for the appeals court said the proceedings were "inadmissible" because "no prosecution can be started against any defendant in absentia".
When the ICJ issued its own ruling in February, the Belgian Foreign Ministry said proceedings against Mr Sharon should be dropped as well.
Middle East cases
The Belgian legislation, which was passed in 1993, has been successfully used in the past to prosecute two Rwandan nuns for their role in the country's genocide.
The Israeli prime minister was placed under investigation for alleged crimes against humanity in 1982.
He was serving as Israeli defence minister when a Lebanese Christian militia allied to Israel killed hundreds of civilians at the Sabra and Chatila refugee camps.
The case has been suspended while the same appeals court considers whether Belgium has jurisdiction on the matter and a ruling is expected as early as June.
A lawyer for the Palestinian groups which filed the suit said after the Rwandan ruling that the case was unlikely to proceed.
"I'm afraid this will mean the investigation will be suspended," said Michael Verhaeghe.
Belgian courts have also been considering a case filed against the Palestinian leader Yasser Arafat for genocide, war crimes and crimes against humanity.
The lawsuit accuses him of responsibility for a series of bomb attacks and murders stretching back more than a quarter of a century.