Saudi Arabia judoka Wojdan Shaherkani was given the go-ahead Tuesday to fight at the Olympics after a row over the wearing of a hijab was resolved, the International Olympic Committee told AFP.
The Saudis had threatened to pull the fighter out of the Games if she was forced to compete with her head uncovered.
However, a compromise has been found.
"We can confirm the International Judo Federation (IJF) and the Saudi National Olympic Committee, under the auspices of the IOC, have reached an agreement whereby the athlete can compete," said a spokeswoman.
"The judo federation will allow her to wear something on her head which will not compromise her safety and which I think they use for competitions in Asia. It is a solution that is acceptable to all parties."
Shaherkani's participation has received the thumbs up from her fellow athletes, although they said the head covering could hinder the Saudi fighter.
Women's world under-63kg champion Gevrise Emane from France, who won a bronze on Tuesday, said the move could encourage more women to take part in sport.
"It doesnt bother me (if she covers her head), it's more likely to be inconvenient for her," she said.
"Judo needs to be more democratic so it's good for her as a woman to be able to compete. And it's good for women in general as it will enable them to do sport."
New Olympic women's under-63kg champion Urska Zolnir from Slovenia said she would have no qualms about facing someone with her head covered.
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The 18-year-old heavyweight, part of a two-woman team sent from the conservative kingdom to an Olympics for the first time, was last week ordered by IJF president Marius Vizer to step onto the mat with her head uncovered.
Judo applies strict safety rules and any covering on the head is deemed to present a risk to the fighter's health.
Saudi Arabia only agreed to send a women's team to London on condition that their two athletes respect a strict dress code.
Having earlier refused to comment on the IOC's statement, the IJF later confirmed that they would allow the fighter to take part wearing a different head covering, although they refused to stipulate what exactly that would be.
"The International Judo Federation (IJF) and the Saudi Arabian Olympic Committee are pleased to announce that they've agreed on a solution to ensure the participation of female judo athlete Wojdan Ali Seraj Abdulrahim Shaherkani at the Olympic Games," said the statement.
"Working with the IOC a proposal was approved by all parties. The solution agreed guarantees a good balance between safety and cultural considerations."
American-raised 800m runner Sarah Attar is the second woman in the Saudi squad in London.
She has spent little time in the Islamic kingdom and grew up mostly in California, where she took up cross country running.
Attar appears without a headscarf in her official London 2012 photo.
For Shaherkani, who makes her bow on Friday, her participation is also contentious on other safety grounds as she has only been involved in the sport for two years and is not even a black belt.
That means she very likely is nowhere near the level of the international fighters she will be coming up against.
She will fight Puerto Rico's Melissa Mojica, ranked 13 in the world, in the first round.