Alan Newton, who was freed by the Innocence Project after new evidence came to light, has been awarded $18.5 million by a jury.
Newton was exonerated four years ago, cleared by DNA evidence which proved he could not have raped a woman in an abandoned building as had been alleged.
He was sentenced to 40 years in prison in 1985.
The federal jury in Manhattan ruled the city had violated Newton’s constitutional rights and that two police officers had failed to produce evidence.
Newton and his lawyers had been told by the police that biological evidence had been lost.
The New York Times has revealed that the rape kit from the case was found in a Police Department warehouse in 2005, a decade after it had been requested by Mr Newton and his lawyers.
Subsequent testing showed that DNA samples collected from the victim did not match Mr Newton.
The city has said it will appeal the payout.