The iconic fly-half, who played against the Lions four times during the 1989 tour of Australia and kicked the Wallabies to World Cup glory in 1999, was admitted to hospital last month.
Lynagh had complained of blurred vision and headaches following a long-haul flight from London, where he now lives, to Brisbane and was diagnosed with having suffered a stroke.
But following a fortnight of intensive treatment, the Royal Brisbane and Women's Hospital have confirmed he will be released.
Earlier in the week Lynagh had Tweeted his gratitude to staff at the hospital.
"A long way to go, but a big step in the right direction," said Australia's record points-scorer.
"I would like to thank all the staff at the Royal Brisbane Hospital. They were fantastic and are real heroes."
Lynagh won 72-caps during an illustrious career with the Wallabies and has gone on to become a well-respected TV pundit.
He booted 15-points against the Lions for Queensland Reds and notched up a further 22-points for the Wallabies during the famous tourists triumphant series.
He was vice-captain during Australia's first World Cup triumph against England at Twickenham in 1991. Four years later he captained the Wallabies to the quarter-finals of the showpiece tournament in South Africa.
Following his retirement from international rugby Lynagh joined Saracens for two seasons and won the 1998 Tetley Bitter Cup.