Answer: He goes back down to Earth to live with Meg
At the end of the movie, Hercules had finally proved himself a true hero. Being a god, Hercules would become immortal, and would never age. He couldn't stand to have a life without Meg. He asked for his mortality back, so he and Meg could go back and live on Earth together. At the end, Pegasus and Meg butt heads, and the Muses start singing the song, "A Star is Born".