The media watchdog decided that Channel 4 had not breached the broadcasting code by showing a conversation where housemate Emily Parr used the word "nigger" in reference to another contestant's dancing.
Ofcom ruled that Channel 4 was justified in broadcasting the scene because the language was shown in context. The scene revealed that other housemates were shocked by Parr's reference and fully expected her to be reprimanded by Big Brother.
Parr's eviction also reinforced that using the word was offensive and unacceptable to the channel.
Ofcom also dismissed some viewers' complaints that Channel 4 had overreacted and ignored its duty of care to Parr outside the house.
Today's ruling will come as a relief to Channel 4, following the furore surrounding 'Celebrity Big Brother' earlier this year.
The broadcaster found itself under fire after contestants Jade Goody, Jo O'Meara and Danielle Lloyd allegedly made racist remarks about Bollywood star Shilpa Shetty.
As well as generating 44,500 complaints to Ofcom, the incident sparked international outrage and triggered rioting in India.
In August, Channel 4 said it would be resting 'Celebrity Big Brother' in 2008 to give other programming a chance.
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