The Supreme Court on Friday lifted the ban on registration of diesel cars with capacity above 2000cc in Delhi and NCR.
It however added that owners will have to pay a green fine to compensate for polluting the city's air.
In 2015, the apex court had temporarily banned the sale of large diesel cars in national capital, leading strong appeals from manufacturers.
The court said it would levy an additional tax (1% of the retail price) on the sale of diesel cars.
In July, top environmental court ordered authorities to stop all diesel vehicles at least 10 years old from being driven in national capital.