Christchurch Girls' High School is understood to have dropped its bid to sack principal Prue Taylor.
Taylor, who was sacked by the school's board of trustees on November 2, returned to her desk today after the Employment Relations Authority ordered her interim reinstatement.
It found her dismissal "procedurally and possibly substantively unjustified".
A full hearing on Taylor's dismissal was due to be held in early February.
However, it is understood that after a mediation meeting between Taylor and the board yesterday, the interim reinstatement has been made permanent.
Taylor today said the February hearing had been dropped.
She said her reinstatement was "a big relief".
"It's really good to know I can go back to looking ahead and planning and thinking constructive thoughts and being proactive rather than reactive."
She said returning to work today in the knowledge she was fully reinstated was "just wonderful".
Taylor was met by a group of parent supporters with flowers and chocolates when she arrived this morning.
She said the board was "more conciliatory" in its approach at mediation than previously.
The outcome was better than she and her lawyer had expected. "We basically achieved at mediation what could have taken three or four days of hearing time."
Taylor would take a break over summer but the focus was now on planning for next year and then "business as usual".
She said the past couple of months had reinforced the importance of communication and dealing with issues as they arose, and following correct procedures. "I think all of this could have been avoided if that had happened."
Board of trustees chairwoman Robyn Burgess would not comment on whether the case against Taylor had been dropped, saying she was "bound by a confidentiality agreement".
In a statement published on the school's website yesterday, Burgess said Taylor and the board had reached an agreement on the principal's return.
"The agreement includes mechanisms for resolving the issues which have arisen."
It states the parties were "pleased to be able to move forward in a constructive manner" and had focused on what was in the best interests of the school and its pupils.
No details of the agreement were released.
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