The Obama-era rule directed public schools to allow transgender pupils to use toilets of their gender identity.
But critics said that guidance was government overreach which threatened other students' privacy and safety.
A letter sent to US schools on Wednesday outlined the change, saying the Obama directive caused confusion.
It had also sparked lawsuits and debate over how it should work in practice, the letter from the Justice and Education departments said.
Anti-bullying safeguards will not be affected, it pledged.
