St Johnstone had announced 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 match away against Motherwell, saw a number of pyrotechnics left off among away fans and two smoke bombs thrown on to the pitch.
But St Johnstone announced today that the decision had been reversed.
In a statement, St Johnstone said: "Further discussion have taken place between all parties and a request from the clubs made to Police Scotland that the ban be lifted has been accepted.
"With the rigorous search policy which will be in place and a busy road network expected, supporters are encouraged to come early.
"We reiterate Celtic's sentiments regarding the excellent relationship that exists between the two clubs.
"We look forward to working together along with other agencies in ensuring an enjoyable spectacle on Boxing Day."
A Celtic spokesman said: "Celtic Football Club has received confirmation that flags and banners will now be permitted at the match against St Johnstone on Boxing Day.
"As we have said, 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.
"We should also bear in mind that supporter safety is of paramount importance and we would re-iterate, that we do not welcome any form of pyrotechnics or smoke bombs at our matches.
"We want to see our matches played in a positive and safe atmosphere and we hope this will be the case on Boxing Day."