The city locked out its bus drivers a month ago, but a provincial labour board ruled on Friday that the lockout wasn't legal and that another couldn't be issued without giving the union 48 hours notice.
The city issued another notice which was to take effect Sunday afternoon.
But Mayor Don Atchison says council revoked that notice at a special meeting on Saturday because he said the labour board's ruling "created a large degree of uncertainty."
Full transit service in Saskatoon will resume Monday and will be free for the rest of October.
Atchison notes the decision was made out of concern for employees, transit riders and citizens.
"We do not want to put them in the middle of a long drawn-out legal dispute," Atchison said in a news release late Saturday.
"We also promised riders and citizens we would not leave people out in the cold with no end in sight to the labour dispute."
Friday's labour board ruling ordered the city to lift its lockout and compensate members of the Amalgamated Transit Union local 615 for monetary losses.
Transit drivers cheered and hugged each other after the ruling, but then the city then issued a news release Saturday morning stating that a second lockout notice had been issued.
The release said transit customers "should be prepared to continue to make alternate transportation arrangements."
City Solicitor, Patricia Warwick, said in that release the city would would carefully review the labour board's reasons for the ruling when it received them.
The union argued before the board that an outstanding unfair labour practice it filed last June meant the city could not change terms of employment.
The complaint wasn't resolved until Oct. 3, almost two weeks after the lockout began on Sept. 20.
The city argued the lockout was legal because the workplace complaint had not been heard at a formal meeting of the labour board at the time the lockout was called.
But the board said the city illegally made changes to the conditions of employment, benefits and privileges of the union members.