The organization expects to resume offering services to its approximately 9,300 Medicaid patients.
Prosecutors for the state of Indiana planned to appeal.
Attorney General's office spokesman Bryan Corbin issued a Friday evening statement after U.S. District Judge Tanya Walton Pratt granted Planned Parenthood's request for an injunction striking down parts of the law calling for the funding cuts.
The law signed May 10 made Indiana the first state to deny Medicaid funds to Planned Parenthood for general health services such as breast exams and Pap tests. It cuts off about $1.4 million from the organization.
The ruling sides with federal officials who say states can't restrict Medicaid recipients' freedom to choose their health care provider or disqualify providers merely because they also offer abortions.
Planned Parenthood of Indiana hasn't had Medicaid funding for services since last month and had to stop seeing Medicaid patients this week.
(The Associated Press contributed to this report.)