Lawyers celebrated outside the court, chanting "Go, Musharraf, go!" The decision also prompted celebrations by hundreds of lawyers in major cities, including Karachi, Multan, Faisalabad, Quetta, Peshawar and Rawalpindi.
"Thank God, we got justice," said Ahsan Bhund, president of the Lahore High Court Bar Association, as he marched with 500 other lawyers.
The court also quashed charges of misconduct against Chaudhry that Musharraf had sent to a separate judicial tribunal. The decision was a surprise — many had expected the court to reinstate the judge while letting the investigation continue.
In a brief statement, a spokesman for Musharraf said he accepted the ruling by presiding Justice Khalil-ur-Rehman Ramday that the president's order suspending Chaudhry was "set aside as being illegal."
"The president respects the decision of the Supreme Court," Musharraf's spokesman, Rashid Qureshi, was quoted as saying by state-run Associated Press of Pakistan. "The president has stated earlier that any judgment the Supreme Court arrives at will be honored, respected and adhered to."
Exiled former Prime Minister Benazir Bhutto declared it to be one of the most remarkable judgments in the history of Pakistan's judiciary.
The movement in support of Chaudhry had "turned into struggle against dictatorship, (for the) restoration of the Constitution and for supremacy of the Parliament," she said in a statement.
At the State Department, deputy spokesman Tom Casey said the reinistatement was in keeping with constitutional procedures and "respects the rule of law."