Mendip District Council adopted its local plan, setting out the local authority's strategic vision for the district until 2029, in December 2014.
But developer Gladman Developments challenged the document, claiming that it did not provide sufficient housing.
In a statement at the time, the council said it would "fiercely contest" the challenge.
But on Monday, Gladman lodged a ‘Notice of Discontinuance’ with the High Court, which confirmed the company was ending its legal action.
Tracy Aarons, corporate manager for built environment at the council, said: "I welcome this news, which means we can carry on with the second part of the local plan, which will earmark the specific sites needed to meet development needs in the future."
Gladman was asked for comment but was had not responded by the time of publication.