The boycott was sparked by Denmark's publication of drawings of the Prophet Muhammad.
Finn Hansen, executive manager of Arla Foods, said: "We're delighted that our largest Saudi customers have decided to lift the boycott."
The company said its products were now selling in 3,000 shops and supermarkets in the Middle East, and that 31 of its largest retailers in Saudi Arabia had promised to resume sales of Arla goods on Saturday.
However, Arla products were not available on Thursday in two big Jordanian supermarkets nor on the shelves of Kuwaiti state co-operatives.
Saudi stores began restocking Arla products after the International Committee for the Support of the Prophet gave the company the green light and praised the measures it had taken to distance itself from the Prophet Muhammad caricatures that provoked demonstrations and riots in January and February.
Arla had published newspaper advertisements condemning the publication of the cartoons and pledged to fund projects helping disabled children and cancer patients in the Middle East.
Soliman Albuthi, spokesman for the International Committee for the Support of the Prophet, which is based in Washington, said: "We must differentiate between those who insulted us and those who stood by us."
The group said its recommendation to end the boycott on Arla would help Danish Muslims who had suffered discrimination in a backlash because of the boycott campaign.
"We must differentiate between those who insulted us and those who stood by us"
spokesman for the International Committee for the Support of the Prophet
It also referred to the conference of Muslim scholars in Bahrain last month that expressed appreciation for Arla's "bold stance", saying "it was a good start for opening a dialogue with this organisation to establish a common ground to reach a common understanding".
In Bahrain on Thursday, a local spokesman for the group, Adel Al-Maawdah, said the end of the boycott was "a clear message that we had no intention to harm Western interests, and that our concern and anger were directed against the offensive cartoons".
Boycott still on
Al-Maawdah, who is also a cleric and member of parliament, said that the boycott had been lifted only against Arla. "This company apologised to Muslims and sponsored humanitarian projects for the needy," he said.
Albuthi suggested that the group would consider lifting the boycott against other Danish companies if they made the right moves.
Arla estimates that it has lost as much as $65 million because of the boycott, which began in January. The company produces milk, powdered milk, cheese and butter.