Chicago rapper Lil Reese will not face charges in California after a woman accused him of rape ... TMZ Hip Hop has learned prosecutors will not move forward with the case.

The L.A. County District Attorney's Office tells us it decided to decline the case due to insufficient evidence. Prosecutors say they opted to pull the plug on July 25, just 10 days after Reese had been arrested.

We broke the story ... LAPD responded around 3:30 AM to a call in the Downtown L.A. area where Reese was staying.

He appeared in court Thursday, and couldn't wait to rub the good news in the face of the haters who doubted his version of events.