The man was released late last night and a file will be prepared for the DPP. The man, who is in his 30s, was arrested in Buncrana on Tuesday afternoon.
Andrew Allen, a father-of-two from Derry, was shot at the home he shared with his girlfriend at Links View, Buncrana on February 9 2012.
The inquest into his killing was opened in Carndonagh recently. The Coroner condemned the murder but said that no cause of death could be recorded because of the ongoing criminal investigation.