The requirement for those wanting to complete a Level 3 early years educator (EYE) course to have at least grade C in both GCSE English and Maths had been criticised by early years sector groups for causing a recruitment crisis.
In announcing the U-turn, early years minister Caroline Dineage said staff will no longer be restricted by GCSE qualifications.
Instead, "functional equivalent" tests, which show good working knowledge of maths and English, will now be accepted to complete the course.
The change in policy forms part of an Early Years Workforce Strategy, to be put in place ahead of the roll out of the government's 30-hour free childcare entitlement for three- and four-year-olds this September.
The U-turn over the GCSE requirement has been welcomed by early years sector leaders.
Neil Leitch, chief executive of the Pre-school Learning Alliance, said: "The alliance has long campaigned for equivalent qualifications such as functional skills to be accepted as alternatives to GCSEs and so this announcement, while overdue, is very welcome.
"We're clear that this change is not in any way about lowering standards in the early years, but rather about giving talented and dedicated practitioners the opportunity to progress their careers. It's vital that we continue to work to ensure that functional skills qualifications are robust and meaningful."
National Day Nurseries Association chief executive Purnima Tanuku said: "We are delighted and very relieved to hear that the minister and the Department for Education have listened to the sector's very real fears and are doing something about it.
"We have been campaigning for the choice of GCSEs or functional skills since 2013 and are pleased that this new measure will soon be put in place to enable the sector to move forward."
Cheryl Hadland, founder of nursery chain Tops Day Nurseries, also welcomed the U-turn.
She said: "It is vital that we recruit and train well-qualified early years professionals, but the GCSE requirements were becoming a barrier to the continuation of top-quality childcare.
"They were also a threat to the government being able to deliver its 30-hour free childcare policy as we simply wouldn't have been able to employ enough staff to meet the increased demand."
This is the second climbdown by the government on entry qualifications for EYE Level 3. In 2015, it backtracked on plans to require all those enrolling to already have A-C Maths and English GCSE.
Evidence emerged last year that early years training providers were refusing to accept those who had not already gained GCSE qualifications amid concerns that undertaking both academic and EYE studies would increase the risk they would fail.
The Early Years Workforce Strategy will also make £3m in funding available to expand the early years teaching school grant, which links schools and colleges with childcare providers in disadvantaged areas.
Grants will be made available to the voluntary and community sector to develop and online training portal and courses.
In addition, a qualification in special educational needs and disabilities will be created "so that teaching staff can get recognition for these specialist skills", says the DfE.
A panel of professionals to help develop clear early years career routes will also be put in place.