Prosecutors have dropped all charges against two teenage boys accused of lighting a fatal bushfire in central Victoria on Black Saturday.

The boys, aged 15 and 16, were accused of deliberately starting the bushfire at Bendigo in February 2009.

Long Gully resident Mick Kane, 47, died in the fire.

The boys were charged with arson causing death and intentionally causing a bushfire.

In August, psychologists told the court the boys were of abnormally low intelligence and were not capable of understanding a trial or properly instructing their lawyers.

They were deemed unfit to be tried, but were still to face a special hearing today to determine their guilt or innocence.

However prosecutors told the Victorian Supreme Court that the Director of Public Prosecutions will no longer pursue the case on the grounds of insufficient evidence and that it was not in the public interest to proceed.

The fire started in the Bendigo suburb of Maiden Gully, destroying 58 homes and burning 341 hectares.