Virgin had said it wanted to "fill the gaps" in the timetable by competing on the line
Virgin Trains has dropped plans to compete with a smaller company running direct services between London, Wrexham and Shrewsbury.
Wrexham and Shropshire (W&S) had said it faced going out of business if Virgin launched the new service.
However, Virgin said detailed analysis showed there was "not a compelling case" for the new timetable.
W&S said it welcomed the news, but still remained concerned at plans by another company to run a new service.
Andy Hamilton, managing director, said: "We are not out of the woods yet as we are still very concerned about the implications of Arriva Trains Wales' proposals to run a direct service from Shrewsbury to London Marylebone, which would also have devastating consequences for our business."
He added: "We will continue to offer the great value and excellent service that we have become known for and - assuming the Rail Regulator does not grant approval to Arriva - are confident of the long term future of this business."
The company had said it could not compete fairly with Virgin, which received £35m public funding last year and has exclusive operating rights at key stations.
There had been concerns Virgin was trying to put W&S out of business
Virgin said it wanted to "fill gaps" in W&S' timetable and denied it wanted to put the smaller firm out of business.
W&S said it would oppose any application by Virgin to the Office of Rail Regulation (ORR) to launch its new service, claiming it might not have survived if Virgin was allowed to operate exclusively at certain stations.
Earlier this week, it emerged that Owen Paterson, Conservative MP for Shropshire North, had written to the ORR Regulation over what he believed was an attempt by Virgin to force (W&S) out of business.
Wrexham MP Ian Lucas had called for a "level playing field" for all companies after a meeting with Transport Minister Lord Adonis.
He said: "It is clear that there was a very strong public reaction in favour of Wrexham and Shropshire.
"I warmly welcome Virgin's change of mind on this issue. I spoke to the company earlier in the week and made clear then my strength of feeling on the issue. I am very pleased at the company's swift response."