Lai left a Hong Kong police station around midnight (16:00 GMT), as supporters hailed his release.
Earlier, Hong Kongers went out to buy the Apple Daily 'en masse', a sign of people's support for this pro-democracy newspaper, owned by Jimmy Lai.
Lai was detained for more than 36 hours under the newly established law on national security.
Signs of Beijing's decision to bring this semi-autonomous region under tighter control have multiplied since it enacted the national security law in response to months of violent protests in 2019.
Lai, a wealthy media mogul, was among 10 people who were arrested on Monday in a major operation against the pro-democracy movement, before about 200 policemen raided the newsroom of his newspaper, which is highly critical of Beijing.
Lai's supporters rushed to newsstands on Tuesday to procure the Apple Daily, which ran a print run of 550,000, eight times more than usual.
Considered a response from Beijing after months of pro-democracy demonstrations that rocked Hong Kong in 2019, the national security law imposed on June 30 gives local authorities new powers to crack down on separatism, terrorism and collusion with foreign forces.
Many protestors denounce the move as restricting liberty since it ends with the "one country, two systems" principle established during the 1997 handover and which guaranteed Hong Kongers freedoms unknown in the rest of China until 2047.
They are also concerned that Beijing uses similar laws to silence protests in other parts of its territory.
Several foreign leaders expressed concern, including US diplomatic chief Mike Pompeo, who met Lai last year and saw his arrest as further proof that the Chinese Communist Party destroyed the freedoms of Hong Kong and the rights of the people.
Lai was arrested for collusion with foreign forces and fraud.
Two of his children were also arrested, as well as the young democratic activist Agnes Chow and Wilson Li, a former activist who presents himself as a freelance journalist for the British network ITV News.
Chow was also released on bail Tuesday.
According to Hong Kong-based The South China Morning Post the Hong Kong police force also added US-based Samuel Chu, of the Hong Kong Democracy Council (HKDC), and another local man to the wanted list, as they were believed to be linked to the case.
Chu was already listed as a wanted person earlier this month, along with five other people, including activist Nathan Law Kwun-chung and former British consulate employee Simon Cheng Man-kit.
The group have been accused of inciting secession and collusion with foreign and external forces to endanger national security, according to a police source.