The Court of Arbitration for Sport ruled that the 21-year-old South African is eligible to race against able-bodied athletes, overturning a ban imposed by the International Association of Athletics Federations.
CAS said the unanimous ruling goes into effect immediately.
"I am ecstatic," Pistorius told reporters in Milan, Italy. "When I found out, I cried. It is a battle that has been going on for far too long. It's a great day for sport. I think this day is going to go down in history for the equality of disabled people."
Pistorius still must reach a qualifying time to run in the individual 400 meters at the Aug. 8-24 Beijing Games. However, he can be picked for the South African relay squad without qualifying. That relay squad has not yet qualified for the Olympics.
Pistorius appealed to CAS, world sport's highest tribunal, to overturn a Jan. 14 ruling by the IAAF that banned him from competing. The IAAF said his carbon fiber blades give him a mechanical advantage.
A two-day hearing was held before a panel of three arbitrators at CAS headquarters last month. Pistorius now is expected to get invitations from track and field promoters across the world who want him to run at their meets before Beijing.
Pistorius said he will be running in both able-bodied and Paralympic events before Beijing. His manager, Peet van Zyl, said the runner will compete in Milan on July 2 and the Golden Gala meet in Rome on July 11.
"Oscar will be welcomed wherever he competes this summer," IAAF president Lamine Diack said in a statement. "He is an inspirational man and we look forward to admiring his achievements in the future."
The International Olympic Committee welcomed the verdict.
"Oscar Pistorius is a determined and gutsy athlete who will now no doubt put all his energy into reaching the qualification standards for the Olympic Games," the IOC said in a statement. "If he makes it we would be delighted to welcome him."
Pistorius holds the 400-meter Paralympic world record of 46.56 seconds, but that time is outside the Olympic qualifying standard of 45.55. His training has been disrupted by the appeal process.
Even if Pistorius fails to get the qualifying time, South African selectors could add the University of Pretoria student to the Olympic 1,600-meter relay squad.
Pistorius would not require a qualifying time and could be taken to Beijing as an alternate. Six runners can be picked for the relay squad. Pistorius also expects to compete in Beijing at the Sept. 6-17 Paralympic Games.
The verdict also clears Pistorius to dedicate himself to competing at the 2012 London Olympics.