The film, "Aaja Nachle," or "Come Let's Dance," was banned Friday in Uttar Pradhesh state, and Punjab followed suit Saturday after complaints that a line in one of the songs was offensive to India's "untouchables," who occupy the lowest rung of the complex social system.
"The ban has been lifted," director Anil Mehta told The Associated Press, adding that the offending line was withdrawn from all prints of the film.
Mehta said there was never an intention to hurt any community and this was communicated to the two state governments that banned the film on grounds of maintaining peace.
"We took a clear position with instructions to all our distributors to remove the objectionable words. Then there was no logic in sustaining the controversy," he said.
Theaters across the country have displayed posters highlighting the removal of the offensive words.
In the movie, Dixit, 42, plays a choreographer who after a decade in New York returns to India to save her dance teacher's school from being razed for a more lucrative development.
She took a break from acting to raise her two sons with husband Shriram Nene, a surgeon, in Denver, Colorado after her last film "Devdas" in 2002.