Officials said they could not put together a case quickly enough to defend the fines.
However, a leading anti-fines campaigner said he believed the penalties were "unenforceable" and urged other drives to appeal against any issued.
Barrie Segal, of English-based website Appealnow.com, represented the woman driver, who has asked not to be named.
Mr Segal said: "This is an astonishing climbdown by Glasgow City Council. The appeal challenged the validity of the council's parking enforcement of the so called "bus lane" on four separate points.
"One, that it was not a properly constituted bus lane; two, the signs were not legal; three, the legislation it claims applied was defective and not enforceable; and four the charge notice sent to the motorist was invalid and unenforceable.
"Despite being given an extended period of time to respond and asking for a further period to respond the council has withdrawn its opposition to the appeal.
"Clearly, it felt it could not bring evidence to refute these points and gave up.
"In my view, motorists should therefore appeal charge notices issued for this "bus lane" and motorists who have paid should ask for a refund."
The three fines were picked up in Cathedral Street.
This is usually considered to be one of the less controversial bus lanes in Glasgow, largely because of the large volume of buses that use it to get to and from the station.
However, Mr Segal and his client claimed the bus lane was not properly constituted or signposted.
Previously, another motorist successfully challenged the council on signage.
Colin Mackenzie won a landmark case against the city in August after he was issued a fixed penalty ticket for driving on a bus lane in Maryhill Road at Bisland Drive.
The latest challenge, however, also sought to undermine the entire legal basis for bus lane tickets.
Mr Segal argued there was no underlying legislation that enabled the council to issue tickets.
The campaigner - who says he has nothing against bus lanes in principle - had hoped to establish a test case through the parking adjudicator.
Council insiders deny there is any problem with underlying legislation - or that they ducked out of the case because they feared they would lose.
Mr Segal's client challenged her notices in August.
The council was given time to respond but failed to do so by this month - and the appeal was upheld by default.
An official council spokesman said: "The council contests appeals against bus lane penalty charges.
"However, in this particular instance, we have been unable to complete the work within statutory timescales and have been forced to drop the case."
The Evening Times revealed earlier this year that a third of all fines issued in one city centre bus lane were later scrapped.
A total of 4321 charge notices were issued to drivers in Argyle Street and Jamaica Street from April 23 last year, when the cameras were introduced, to July 31. But 1333 of those penalties were later cancelled by council bosses after appeals by motorists.
A total of 177,945 fines were issued to vehicles in all the city's 11 enforced bus lanes. Of that number, 12,683 were cancelled.