The IOC suspended Kuwait in 2010, saying there was evidence of political interference in the country's sports movement.
It said in May that Kuwaiti competitors could only participate under the Olympic flag with the title "Independent Olympic Athlete".
But after meetings between Kuwaiti officials and the IOC, the suspension has been lifted, the Olympics body said.
"I can confirm Kuwait's National Olympic Committee (NOC) will be fully represented in London with flags and anthems," IOC Director of Communication Mark Adams said in an e-mailed statement.
The IOC had said Kuwait needed to take steps to ensure the independence of its sports movement before the suspension could be lifted.
The small Kuwaiti Olympic team includes two women - shooter Mariam Erzouqi and swimmer Faye Sultan. It is only the second time that Kuwaiti women will compete at an Olympic Games.
The first woman to compete for Kuwait at the Olympics was Danah al-Nasrallah who took part in the 100m in 2004.
The London Games start on July 27.