Bangladesh's emergency army-backed government gave permission for Hasina, who led the country from 1996 to 2001, to be released - albeit with the charges still in place.
The government is trying to end a stalemate with the two main political parties, the Awami League and the Bangladesh Nationalist Party (BNP).
Hasina asked for permission on Sunday to allow lawyers to appear on her behalf in court, after a government-appointed medical board suggested she should be sent abroad immediately for treatment.
|Zia has said the move to allow foreign travel|
could be a trap [EPA]
Both the Awami League and the BNP had refused to hold talks to plan for an election at the end of the year because their respective leaders, Sheikh Hasina and Begum Khaleda Zia, were detained.
Hasina was arrested in July by Bangladesh's interim government and faces at least four graft charges.
Zia, another former prime minister, has accused the government of trying to set a trap by allowing the leaders to travel abroad.
The government could block Hasina or Zia's return were they to leave the county.
Zia said that she would not seek medical treatment abroad, despite a medical board saying that she should travel for treatment for arthritis and knee problems.
Hasina held talks with four government ministers after her release on Wednesday evening, but she will be tried in absentia.