"In order to further strengthen social cohesion, I have signed a decree granting a presidential pardon to Laurent Gbagbo," President Ouattara said in a televised speech to the nation ahead of its independence day on Sunday.
He said he had also asked for Gbagbo's accounts to be unfrozen and for the payment of the arrears of his presidential lifetime annuity.
The decision follows a rare meeting in July between Ouattara, Gbagbo, and former president Henri Konan Bedie.
The trio have dominated Ivory Coast's fractious political scene since the 1990s. Bedie was president from 1993 until his ouster in a 1999 coup. Gbagbo governed from 2000 until his election defeat to Ouattara in 2010.
Tensions came to a head most dramatically after the 2010 election. Gbagbo refused to concede defeat, leading to a brief civil war that killed about 3,000 people before rebel forces aligned with Ouattara swept into the main city, Abidjan.
The president has not yet said whether he plans to run for a fourth term in 2025. He has said he would like to step down but also suggested he would need Gbagbo and Bedie to commit to withdrawing from politics in order to do so.
They have not so far indicated what their plans are.
Gbagbo returned to Ivory Coast last year after being acquitted in 2019 by the Hague on war crimes charges for his role in the civil war after the 2010 election.
Back home, he still faced a 20-year prison sentence for a 2019 conviction linked to the robbery of funds from the Abidjan central bank during the post-election period. He has always denied the charges.