Indian entities were earlier not allowed to invest in Pakistan.
On 1 August, the Indian government formally allowed foreign direct investment from Pakistan in an attempt to build trust between the two nuclear-armed neighbours.
Pakistani citizens and companies are now allowed to invest in all sectors apart from defence, space and atomic energy, a government statement said. The move to allow FDI from Pakistan had been announced by India's trade minister earlier this year.
India and Pakistan have fought three wars since they broke from British colonial rule in 1947.
Both sides have implemented measures to improve trade and business ties, as they slowly rebuild relations that were shattered by the 2008 Mumbai attacks.