Monique Ooms, 31, struck up a supportive friendship with the boy, offering him support after his friend died in a car crash.
They spoke to each via Instagram and text messages but their communication became increasingly affectionate and personal, with Ooms sending the boy photos of herself in her underwear.
She began a sexual relationship with the student in July 2022 and they had sex at her home and in her car over the following weeks.
The school was notified anonymously and Ooms was stood down.
She later pleaded guilty to four charges of sexual penetration of a child aged 16 or 17 under her care, supervision or authority.
County Court Judge John Smallwood sentenced Ooms to a four-year community corrections order on March 24, ordering she perform 300 hours of community work.
The judge found Ooms' "fragile mental state" at the time of offending, due to past trauma, depression, anxiety and bipolar disorder, contributed to her making immature and poor judgments about relationships.
"It is a very unusual situation in your personal circumstances and I think it justifies the imposition of a non-custodial sentence," Judge Smallwood said at the time.
"For you to be imprisoned would cause extreme problems for you."
But the Director of Public Prosecutions appealed the sentence, arguing it was manifestly inadequate.
Prosecutors said the judge had underestimated the seriousness of the offending and that her position as a teacher had helped her gain access to the boy.
Ooms, who is pregnant, sat in the back of the Court of Appeal in Melbourne on Tuesday and shed a tear as she learnt she would not be going to jail.
Justices Richard Niall, Maree Kennedy and Cameron Macaulay dismissed the appeal, finding the sentencing judge did not make any error in handing Ooms a community work order.
While they said her offending was serious and persistent, Oom's mental illnesses "would potentially render a term of imprisonment 'catastrophic'".
"This was a difficult sentencing exercise," the judges wrote.
"It is a conspicuous example of a judge concerned to do 'individualised justice' and to exercise the judicial sentencing discretion to 'do justice' in the particular case."
Ooms walked free from court and was granted a certificate to apply for the DPP to pay her legal costs.
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National Sexual Abuse and Redress Support Service 1800 211 028
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