Iranian foreign affairs minister Ali Salehy announced on Wednesday that "Tehran will exempt tourists and traders coming to Iran from Egypt from visa requirements," according to the Egyptian state-run MENA news agency.
The decision will be announced formally on Thursday, according to the minister.
Salehy said that relations between the two countries have developed significantly after the Egyptian revolution.
"Every day we are taking steps forward," he said.
Under late president Anwar Sadat, Egypt signed a peace treaty with Israel in 1979, becoming a close ally of the United States and Europe. Iran, following its 1979 Islamic revolution, became a centre of opposition to Western influence in the region. Diplomatic relations between the two states were broken off in 1980.
Iranian President Ahmadinejad is currently visiting Egypt, indicating a thaw in relations since Egyptians elected an Islamist president, Mohamed Morsi, last June.
Ahmadinejad heads Iran's delegation to a summit of the Organisation of Islamic Cooperation being held in Cairo.
The OIC summit is the biggest international event President Morsi has hosted since taking power seven months ago as the first elected leader in Egypt's 5,000-year history.