St Johnstone had announced on Sunday that a ban had been imposed in a bid to prevent flags being used as a shield to let off smoke bombs and flares, which is a criminal offence in Scottish football grounds.
Celtic's most recent Scottish Premiership away trip, against Motherwell, saw a number of pyrotechnics left off among away fans and two smoke bombs thrown on to the pitch.
But Celtic announcedtoday that the decision had been reversed.
A Celtic statement read: "Following discussions today between Celtic, the local police and St Johnstone FC, it has been decided that flags and banners will now be permitted at the match on Boxing Day.
"We have an excellent relationship with everyone at St Johnstone FC and we thank them and the police for reviewing their initial decision.
"Football is about colour and atmosphere and creating a positive occasion for all and everything should be done to ensure that such an event can take place.
"However, it is also imperative that the safety and the well-being of fans is given paramount importance and in this regard we share the obvious desire of St Johnstone FC and the police that all matches take place in a safe environment.
"We do not need or welcome any form of pyrotechnics at matches and clearly any continued presence of these does nothing for Celtic Football Club or our supporters."
The statement came as Motherwell began work to replace more than 250 seats which were broken by Celtic fans during their Fir Park meeting on December 6.
Police said that 18 smoke bombs, three fireworks, and one flare had been set off inside the ground. A number of arrests have been made as police probe the vandalism inside the ground and several disturbances outside.