The six-day strike had left commuters stranded across the country, with taxis taking only emergency fares for disabled people or those needing to get to hospitals, and led to scuffles in Rome as protesters clashed with police.
Drivers say the current rules benefit ride-hailing service Uber or NCCs – cars rented with a driver – because unlike taxis they can buy licences in smaller towns, where they cost less, but use them to work in cities.
Taxi drivers are also furious they have to work under fixed tariffs while Uber and the NCCs can charge as much as they like.
In the middle of the night, and after five hours of negotiations, Italy's vice-minister for transport Riccardo Necini said drivers had agreed to return to work.
The government will meet Wednesday with taxi and NCC representatives to thrash out guidelines for the sector.
The late-night deal followed days of disruption and even violence.
Drivers and street vendors clash with police. Photo: Filippo Monteforte/AFP
Earlier on Tuesday protesters in Rome set off flares outside parliament, with one of these shattering the windows of a neighbouring building.
Demonstrations were also staged in Milan and Turin, where taxis blocked a main square for several days.
“A taxi licence in Rome is worth 150,000 euros ($158,000), but the NCC pays ten times less elsewhere,” said Gabriele, 52, who has been a taxi driver since 2011 and did not want to give his surname.
His colleague, Antonio Moratti, 58, gave as an example a village in Calabria in southern Italy which he said had sold some 200 licences to drivers who went to work in cities — though the town was only authorized to issue two licences.
The government postponed the bill to regulate car-hire services because it wanted more time to investigate the issue.
Rome mayor Virginia Raggi said she supported the taxi drivers, calling for a “stop to reforms imposed from above which add to city management problems”.
But she had urged them to find a way to return to work, saying “the taxi drivers are a calling card for tourists and foreigners” stranded at airports, stations and hotels.