North Carolina lawmakers will repeal a controversial HB2 law which limits protections offered to gay, lesbian, bisexual and transgender people.
Democratic Governor-elect Roy Cooper announced the repeal after Charlotte City Council voted to strike down a local law that prompted HB2.
The law requires transgender people to use toilets that correspond to the sex listed on their birth certificates.
The ruling led to boycotts by sports teams, businesses, and entertainers.
Public bathrooms have become a flashpoint in the battle over transgender rights in the US.
The Justice Department sued North Carolina over the law and US Attorney General Loretta Lynch likened that law to the policies of racial segregation. The state's Republicans argued that the law was necessary for privacy and safety.
But the incoming governor, Mr Cooper, said he had received assurances from the senate leader and House speaker, both Republican, that the law would be scrapped at a special session on Tuesday.
"I hope they will keep their word to me and with the help of Democrats in the legislature, HB2 will be repealed in full."
The Charlotte City Council voted unanimously to invalidate its LGBT non-discrimination ordinance, which allowed transgender people to use restrooms based on gender identity.
Republicans have said the statewide law was passed to overturn the Charlotte rule.
The announcement comes just days after the Republican-controlled legislature called a special session to strip the incoming governor of some of his powers when he takes office next month.
Mr Cooper, the state attorney general, defeated incumbent Governor Pat McCrory in a contentious and protracted election in November.
Mr McCrory came under fire earlier this year for enacting the bill, leading to a huge backlash from campaigners, businesses and artists, with stars such as Bruce Springsteen and Ringo Starr cancelling concerts across the state.
Graham Wilson, a spokesman for Governor McCrory, blamed Charlotte lawmakers for the controversy.
"Governor Pat McCrory has always advocated a repeal of the over-reaching Charlotte ordinance, but those efforts were always blocked by Jennifer Roberts, Roy Cooper and other Democratic activists," Mr Wilson told the Charlotte Observer newspaper.
"This sudden reversal, with little notice after the gubernatorial election, sadly proves this entire issue originated by the political left was all about politics and winning the governor's race at the expense of Charlotte and our entire state."
In May, the Obama administration issued a directive ordering public schools to allow transgender students to use toilets that correspond to their gender identity.
The president's announcement prompted 12 states to announce they would sue the federal government over the directive, including in Texas, Alabama and Wisconsin.
In August, a Texas judge approved a temporary injunction suspending that directive.