Bernard Collaery, barrister for Krunoslav Bonic, 39, has labelled the case a travesty, saying his client should never have been locked up on "nonsense" war crimes allegations stemming from the bloody Bosnian conflict in the 1990s.

Mr Collaery has used the case to call on federal Attorney-General George Brandis to reform Australia's extradition laws, which allow citizens to be locked up without evidence.

"This case demonstrates why the Extradition Act needs urgent review," he said.

"It's a scandal that an Australian citizen has been kept in custody this way, without any investigation.

"Despite the law, an attorney should really make some basic inquiries before there is extradition, particularly extradition to an emerging democracy."

Bonic was a Bosnian Croat soldier during the 1992-95 conflict, which was marked by allegations of war crimes on all sides.

Witnesses made accusations against Bonic while giving evidence in unrelated trials at The Hague in the late 1990s and early 2000s. The accusations related to Bonic's service for Croatian Defence Council in central Bosnia.

He was captured by Muslim forces and held for more than 11 months, claiming to have suffered beatings and torture.

Bonic was eventually released and came to Australia more than 20 years ago.

He lives here with his wife and three children, who attend a Canberra primary school.

Extradition proceedings to force Bonic to front domestic Bosnian courts, rather than the International Criminal Tribunal at The Hague, began quietly in the ACT Magistrates Court in late September.

He was held in custody at the ACT's Alexander Maconochie Centre until Thursday, when the order was made to set him free.

The extradition hearing had not even begun.

Mr Collaery, who travelled to Bosnia three times in recent months, said the prosecution of Bonic collapsed because there was simply no evidence to support the allegations of war crimes.

The weakness of the case, he said, could easily have been established through simple investigation by Senator Brandis and the federal government.

"This case raises very serious liberty issues concerning us as Australian citizens and whether we can, without any inquiry at all, be exported overseas to face an offence that's been alleged by another country," he said.

He said evidence existed to suggest Bonic was the victim of war crimes and torture, and that Bosnia had got the wrong man.

"It [the case] was simply full of hearsay, rumour and other allegations that really could not be tried in any credible court of law," he said.

Mr Collaery said Bonic had been held in custody by the federal government on the basis of statements taken from him during torture by Muslim soldiers during the war.

Bonic left court with his family and friends to applause and was cheered as he drove from the precinct.

"Our client is happy to be back with his family and three children," Mr Collaery said.

"He's an Australian and he should not have been held for this period.

"Senator Brandis owes this family an apology."