Dole had sued filmmaker Fredrik Gertten for showing the documentary "Bananas!" despite a court ruling that the case on which the film was based had been part of a massive extortion plot against the company.
The documentary shows the alleged plight of Nicaraguan workers who say they were made sterile by a pesticide used at Dole banana plantations in the 1970s.
Dole's lawsuit sparked protests in Sweden, where critics said the food company was trying to interfere with the freedom of speech.
In a statement, Dole said it decided to withdraw the lawsuit "in light of the free speech concerns being expressed in Sweden, although it continues to believe in the merits of its case."
"While the filmmakers continue to show a film that is fundamentally flawed and contains many false statements we look forward to an open discussion with the filmmakers regarding the content of the film," Dole's Executive Vice President and General Counsel, C. Michael Carter said.
The film was completed before a California judge dismissed two cases against Dole, saying the workers were recruited by a lawyer to lie. That ruling has been appealed.
The film was shown twice at the Los Angeles Film Festival in June with a lengthy written disclaimer by organizers who said it did not present a fair and accurate account but was worth showing as "a case study" of what happens when a story changes after a documentary is completed. It has been show at cinemas in Sweden since Oct. 9.
Gertten told reporters in Stockholm he was very happy about Dole's decision and hoped the film can now continue to be screened in the U.S. and Canada.
"We have cut a very balanced film, we haven't done a propaganda story," he said. "Really we did everything right."
He was supported by two Swedish lawmakers and the Swedish minister for culture, Lena Adelsohn Liljeroth who said Thursday that Dole made a "wise" decision in withdrawing the lawsuit.
Earlier this week Swedish food chain ICA _ a Dole customer _ held a meeting with the company saying it felt the filmmaker had the right to express his side of the story.
"We met their European division and ... put forward our view on the matter," ICA's fruit and vegetables chief Lars Astrom told The Associated Press. "We said we thought they should withdraw the lawsuit and asked them to get back to us, and now they have done that."