Mildura police have dropped a criminal charge against a woman who was filmed questioning her neighbour's Indigenous identity in a video that went viral with the hashtag #toostrongforyoukaren.

Karen Ridge, 48,of Mildura, was charged with wilfully damaging an Aboriginal flag belonging to Indigenous artist Robby Wirramanda Knight.

Mr Knight had filmed Ms Ridge and another neighbour, Robert Vigors, berating him and questioning his Aboriginal identity during an argument on December 14 last year.

Prosecutors withdrew the charge against Ms Ridge at the Mildura Magistrates Court on Wednesday morning. Neither she nor her lawyer appeared.

The video went viral online the weekend it was filmed and became associated with the hashtag #toostrongforyoukaren, a reference to a comment Mr Knight made to Ms Ridge during the dispute.

Last month, police also withdrew a charge of attempted criminal damage that had been laid against Mr Vigors, 65, over the same incident.

Ms Ridge and Mr Vigors were originally charged in February, more than two months after the argument at Mr Knight's Mildura home.

Mr Vigors was the franchisee of two McDonald's outlets in the Mildura area until the weekend of the dispute, in which he could be heard questioning Mr Knight's Aboriginal identity.

McDonalds Australia later said it had "taken over the operation" of the restaurants and that Mr Vigors was "no longer involved".

About 200 people gathered at an anti-racism rally in Mildura the weekend after the viral video incident, at which Mr Knight told the crowd the problem was bigger than those he filmed questioning his identity.