Jaffna is now linked to the rest of Sri Lanka
The opening of the strategic A9 highway means that civilians from areas under the control of Tamil Tiger rebels can travel freely to government-controlled areas.
Government troops captured Jaffna from the rebels in 1995 but the Tigers continued to control access to the peninsula.
The move to open the highway was brokered by Norwegian peace negotiators under the terms of a ceasefire agreement which was signed on 23 February.
Relief
The decision to throw open the road came after overnight negotiations between the two parties with the help of the Norwegian delegation.
The reopening of the highway to civilian traffic was one of the main points in the ceasefire agreement which took effect in February.
Jaffna residents had pressed for the move to allow them an alternative to expensive air or sea travel to the rest of the island.
Last week Sri Lanka lifted a six-year ban on domestic flights and cleared the way for commercial airlines to resume services to the war-ravaged Jaffna peninsula.
Flights were banned in 1996 amid fears that the rebels would hijack a domestic airline to carry out an attack.
Rebel chief
The latest peace move comes just days before the Tamil Tigers' reclusive chief, Velupillai Prabhakaran, meets the media for the first time in a decade.
Mr Prabhakaran will meet journalists in the rebel stronghold of Kilinochchi and spell out his position on the peace process.
The rebels have been fighting for a separate homeland for the Tamil minority in the north and the east - something which the government rejects.
More than 60,000 people have died in two decades of fighting between the Tamil Tigers and the government.