"We cannot pursue the case against Wallace without Clara Miller," said Washington County State's Attorney M. Kenneth Long Jr. Monday in explaining the dismissal.
A co-defendant in the case involving the death of Darrius Allen Fetterhoff, Miller has been the subject of a multi-state search since September.
"If Miller is located, we will reassess our position," Long said.
Miller, 19, is facing charges including two counts of accessory after the fact, felony theft, auto theft and unauthorized use of a motor vehicle.
Authorities have been searching for her for several months. Crime Solvers has offered a $1,000 reward for information on her whereabouts.
In addition, Long said, forensic test results aren't back yet.
Long said the state also took this step because of the 180-day rule in Maryland - time the prosecution has to bring a person to trial in a speedy fashion.
Wallace, 30, formerly of the first block of East Franklin Street, had been indicted on first-degree murder charges by a Washington County grand jury.
Fetterhoff, 58, was hit in the head on Aug. 20, rolled over an embankment and left for dead, police said. Found nearly a week later, he died Aug. 28.
Investigator Roy Harsh said an unconscious Fetterhoff was found along the Conococheague Creek east of the Creek Bridge on Broadfording Road by a fisherman looking for bait.
The police investigation indicated Fetterhoff dropped his wife off at work Aug. 20, drove to Hagerstown and picked up Miller.
The two later picked up Wallace, Harsh said, and apparently drove to Hopps Landing west of Hagerstown, where Fetterhoff was struck and pushed down an embankment.
Fetterhoff's car was then driven back toward Hagerstown until it ran out of gas near Salem Avenue just outside of the city, Harsh said. A passing motorist gave Thomas and Miller a ride into town, he said.
As sheriff's deputies searched the area around Fetterhoff's abandoned 1991 Ford Tempo, which had blood inside, the motorist stopped to ask what was going on.
The motorist said he gave the pair a ride and described them to a sketch artist, Harsh said. Two other witnesses gave descriptions as well.