Trade was suspended on Friday after Indian authorities detained a Pakistani truck driver accused of drug trafficking.
Kashmir has been divided between India and Pakistan since the two countries won independence from Britain in 1947. Both claim the scenic Himalayan territory in full.
Barter trade across the de facto border began in 2008 as part of peace efforts, but it is frequently disrupted by disputes.
“Trade has resumed between India and Pakistan after successful negotiations between authorities from both sides,” local administration official Sayed Ishtiaq Gillani told AFP.
He said cargo trucks waiting on both sides of the border had started to move.
Trade and Travel Authority chief Imtiaz Wayen confirmed the resumption of trade.
“Yes! Trade and travel between Pakistan and India has resumed and Indian officials have decided to let all the trucks cross the border except one truck in which drug was found last week,” Wayen told AFP.
He said the driver had also been detained and would be interrogated by the Indian authorities.
Pakistani authorities had also started an investigation and arrested a Trade and Travel Authority official in connection with the case, he said.
Wayen said a special cross-border bus service that operates twice a week would also resume.
Early on Monday, the Indians had requested the release of 50 trucks held by the Pakistanis, who in turn asked for access to the detained driver and release of 22 trucks held by the other side.
Delegations from both sides had met on Monday but failed to reach agreement- AFP