A trial project which would have seen some airport workers required to carry an ID card was also ditched.
Previously, ministers had said the cards would be obligatory for all once four-fifths of the population had one any way.
But Mr Johnson said: 'Holding an identity card should be a personal choice for British citizens – just as it is now to obtain a passport.'
The government has already spent £883million on ID cards since 2003.
About £650million was spent on two contracts awarded in April, while £36million went on a consultation exercise.
The U-turn was Mr Johnson's first major announcement since he became home secretary on June 5.
It follows recent reversals on holding the Iraq war inquiry in private, getting MPs to sign up to a code of conduct and Royal Mail privatisation.
The cards will still be compulsory for foreign workers but the scheme for Manchester Airport and London City Airport staff will be voluntary.
Ministers insist the £30 card will be useful for youngsters wanting to buy alcohol and can be used instead of a passport for travel in Europe.
A pilot scheme covering Greater Manchester will be extended throughout the north-west early next year.
Phil Booth, of No2ID, said: 'This is a humiliating climbdown but they are still hanging on to the scheme. They are rearranging the deckchairs while this Titanic heads to the bottom.'
Shadow home secretary Chris Grayling said: 'This decision is symbolic of a government in chaos.'
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