Individuals, firms and pension funds will be free to take money out of Iceland from Tuesday onwards.
Iceland says all capital controls put in place to stabilise the economy during the country's 2008 financial meltdown will end this week.
Sunday's announcement marks the completion of Iceland's return to international financial markets.
"Capital controls on the country's individuals, firms and pension funds have been lifted with effect on Tuesday," the government said in a statement.
During Iceland's financial crisis - when the three biggest banks collapsed - the restrictions prevented foreign investors from taking their money out of Iceland and allowed the authorities to shore up the national currency, the krona.
The centre-right government in the island nation of 332,000 people has promised to allow the free movement of capital, while guaranteeing the stability of the economy.
"This is a very pleasant turning point in the economic rebuilding after the financial crisis of 2008 and 2009," said Bjarni Benediktsson, the country's prime minister.
"One can say that the capital controls were a necessary part of rebuilding the economy after the crash."
In recent years, the restrictions have made life difficult for Icelandic companies with business activities abroad, and have rendered the country less attractive to foreign investors.
Iceland has been lifting the controls over the course of the last year.
"Iceland's careful, measured approach to lift capital controls was developed and approved with domestic and international support. As a result of this structured plan, our diversified economy is larger than ever before and expected to continue to grow at a robust pace this year," said Finance Minister Benedikt Johannesson.
"This move is the critical first step in the new government's strategy for the country's financial future, and we can now look ahead with a healthier, stronger and more diversified economy."
Iceland's economy surged last year as dynamic tourism and investment powered a strong recovery from the 2008 collapse.
Preliminary figures released last week showed 7.2 percent growth for 2016 with GDP soaring by 11.3 percent in the fourth quarter from the same period the year before.
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