But relatives of crash victims denounced the move.
The FAA will detail software upgrades and training changes Boeing must make in order for it to resume commercial flights.
When it does fly, Boeing will be running a 24-hour war room to monitor all MAX flights for issues that could impact the jet's return, from stuck landing gear to health emergencies, three individuals familiar with the issue said.
The Federal Avation Administration - and regulators around the world - grounded the model in March 2019 following two fatal crashes.
"This is not the end of this safety journey", FAA Administrator Steve Dickson told CNBC.
"I feel 100% confident", he added.
However, the FAA must still approve pilot training changes for each U.S. airline, and airlines must perform required maintenance on the planes before they can return to the sky.
The Boeing 737 Max aircraft will not be returning to Canadian skies just yet, despite being cleared for takeoff by US regulators.
Dickson said he said expects other worldwide regulators will "complete their work within a relatively short period of time".
The U.S. planemaker's best-selling jet will make its comeback facing headwinds from a resurgent coronavirus pandemic, new European trade tariffs and mistrust of one of the most scrutinized brands in aviation. He noted the agency is adopting certification reforms and improvements in response to outside reviews of the 737 MAX certification. Boeing says the software also does not override pilot controls like it did in the past.
Families of the Ethiopian crash victims said in a statement they felt "sheer disappointment and renewed grief" following the FAA's decision to return the aircraft to service.
On March 17, 2019, Ethiopian Transportation Minister Dagmawit Moges reveals "clear similarities" between the Ethiopian Airlines flight 302 and Lion Air flight 610.
The company changed the software so it doesn't repeatedly point the nose of the plane down to counteract possible aerodynamic stalling.
Investigators focused on anti-stall software that Boeing had devised to counter the plane's tendency to tilt nose-up because of the size and placement of the engines.
The FAA, which has faced accusations of being too close to Boeing in the past, said it would no longer allow Boeing to sign off on the airworthiness of some 450 737 Maxs built and parked during the flight ban.
American Airlines, Copa, Southwest, SunWing and WestJet are among the airlines that have previously flown 737 MAX-series aircraft to Costa Rica, per AviacionCR.
Meanwhile, Alaska Airlines expects to receive its first 737 MAX early next year and begin passenger service in March.
And the FAA said it must approve 737 MAX pilot training program revisions for each United States airline operating the MAX.
A humbled Boeing is scrambling to keep up maintenance and find new buyers for many of its mothballed 737 MAXs.
Boeing comes under scrutiny from American and global regulators, as well as the US Congress, which is investigating complaints from American pilots about the MCAS, and the close ties between the FAA and the company.
On Nov. 18, FAA clears the Boeing 737 MAX to return to the skies.
Boeing estimates that just over half of the more than 800 grounded 737-8 and 737-9 planes have not yet been delivered and are still at Boeing.
Investigation reports have faulted Boeing and the FAA on the plane's development and for concealing information about MCAS from pilots, while a Justice Department criminal probe is ongoing.
Dickson acknowledged there was fragmented communication within the FAA and between the FAA and Boeing during the 737 MAX certification.
But the news came as a blow to families of the crash victims, including Mr Ryan's widow Naoise Ryan who told Reuters "our family was broken".