Indonesia's public prosecutor has dropped the charge of possessing military secrets against academic Lesley McCulloch despite opposition from the army.
But her trial on a lesser visa violation charge began in Banda Aceh on Monday.
Dr McCulloch had been lecturing in Asian studies at the University of Tasmania until she left to travel to Aceh in August with an American friend, Joy Lee Sadler, and an Indonesian interpreter.
They were arrested on September 11 and were charged with violating their tourist visa conditions, allegedly by contacting rebels of the Free Aceh Movement.
If convicted, they face a maximum of five years in jail and fines of 25 million rupiah (£2,800).
Scottish-born Dr McCulloch has been held by Indonesian police in Aceh for the past two months.
She has been a regular visitor to the province for several years and was researching human rights abuses and military excesses when arrested.
Dr McCulloch and Ms Sadler were held at police headquarters in Banda Aceh, where they say they were beaten, threatened and held without access to outside agencies. The authorities have dismissed any claims of ill-treatment.
Damien Kingsbury, a colleague of Dr McCulloch at Deakin University who has also written extensively on Indonesia, said officials from the American embassy were planning to visit Ms Sadler and Dr McCulloch last week.
Dr Kingsbury said the British embassy had become more active recently following political pressure from London.
He said that he had explained to the public prosecutor that the information found on Dr McCulloch was his and was the result of his academic research.
As a result, the military secrets charge against her had been dropped, he said.
Dr Kingsbury said: "Needless to say, I can't return to Indonesia until this matter is cleared up, and that won't be until after Lesley's outcome is known.
"It is worth noting that only one other foreigner has ever been held more than a day or two on a visa charge, and that was in West Papua many years ago."
Dr Kingsbury added: "Lesley's case has set a major precedent, especially for researchers in difficult areas or subjects."