William Burton, known as Billy, was jailed for life in 1992 after being caught trying to smuggle 12lb of cannabis out of the country.
He has now received a pardon from the Philippine President Benigno Aquino III after campaigns were set up in the UK to secure his release on the grounds of his deteriorating health.
Mr Burton, 48, from Rufforth, North Yorkshire, was released on the condition that he returns home, never returns to the Philippines and pays a 20,000 peso (£294) fine.
Commenting on Mr Burton's release, Guy Tweedy, who set up the campaign group Free Billy Burton, said it was a massive relief.
Mr Tweedy said: 'I've been campaigning for 20-odd months now.
While we don't condone what he did, he's deteriorated as a Thalidomider and we had to get him out.'
He added: 'I've never met him but I just felt that, looking at his case, he's done his time.'
Mr Tweedy, from Harrogate, North Yorkshire, said he would 'absolutely, definitely' be there to meet Mr Burton when he returns home.
'I'll be happy when he's got his feet on the ground in this country,' he said.
Freddie Astbury, the president of Thalidomide UK, also welcomed the news.
He said: 'We were very concerned about his health because his health had deteriorated rapidly since being in prison.
'Obviously, nobody supports why he was there but, at the end of the day, his health's deteriorated and he needs to be in a safe environment now and get all the help that he needs.'
Mr Astbury added: 'The main thing is, get him back, get him treated and get him the health he deserves and as quickly as possible.'
Jago Russell, chief executive of Fair Trials International, said: 'Thousands of people have spent this Christmas in jails all over the world, far from home.
'We are delighted that the Philippine government has shown compassion for Billy and that, for him, this ordeal is finally over.'
Jeremy Brown, Foreign Office minister, said he had discussed Mr Burton's case with the Philippine government during a recent trip.
He said: 'I welcome the news that President Aquino has decided to grant Billy Burton clemency.
'I supported Billy's clemency appeal given the compelling, compassionate circumstances of his case, and discussed it with both President Aquino and justice secretary Leila De Lima during my recent visit to the Philippines.
'I know that this news will be warmly welcomed by Billy's family and his supporters at the Thalidomide Trust who have campaigned tirelessly on Billy's behalf.'