The rules were put in place when violent anti-government protests forced the cancellation of a major regional summit in the south of the country.
Two people died and more than 100 were injured in clashes two weeks ago, which brought the capital to a standstill.
The red-shirted protesters were calling for Mr Abhisit to stand down.
Large numbers of protestors had defied the state of emergency, blocking roads, disrupting traffic and clashing with police and local residents.
Speaking at a special parliamentary session early on Friday, Mr Abhisit said: "Today, the government will lift the emergency decree in Bangkok and surrounding areas."
He said doing so was "part of measures to find a solution for the country" and to help find reconciliation between the yellow-shirted pro-government supporters and their red-shirted rivals.
"The government wants to show its sincerity, that the government wants reconciliation and to make the country move forwards," said Mr Abhisit.
New tactics
The anti-government protesters from the United Front for Democracy Against Dictatorship (UDD) say Mr Abhisit's government is illegitimate, and are calling for fresh elections.
Many of them also want to see the return to Thai politics of former Prime Minister Thaksin Shinawatra. He was ousted in a military coup in 2006.
The red shirts began their three-week protest in March, with a sit-in at government buildings.
But the demonstrations escalated and there were violent scenes on the streets of Bangkok in which more than 100 people were injured and two people died.
Mr Abhisit was forced to cancel a summit of leaders of the Association of South-East Asian Nations (Asean), scheduled to be held in the coastal resort of Pattaya, after protesters broke into the venue.
Several national leaders had to be airlifted from the area.
The protest leaders ended the demonstrations on 14 April after thousands of troops were moved into the area.
The UDD said they wanted to avoid casualties but vowed that their campaign would continue.
Three days later, a prominent leader of the pro-government yellow shirts, Sondhi Limthongkul, was shot and injured in an apparent assassination attempt.
Three UDD leaders are being held in custody after the protests, but on Tuesday another leader, speaking to the BBC from hiding, said the movement would now change its tactics.
Jakrapob Penkair said the UDD would consider possible armed attacks.
