British Foreign Secretary, Philip Hammond, is in Tehran with a delegation of business leaders for a ceremony to mark the reopening.
It held about the same time, Iran was also reopening its embassy in London.
The UK embassy was closed in 2011 after it was stormed by protesters during a demonstration against sanctions.
Mr Hammond is the first UK Foreign Secretary to visit Iran since 2003.
The visit came weeks after Iran reached a deal with six world powers aimed at curbing its nuclear programme.
Earlier, Mr Hammond said the nuclear deal and the election of Hassan Rouhani as President in June 2013, had drawn greater engagement with the western world and had been “important milestones” in the improved relations between the two countries.
In November 2011 Iran announced it was expelling the UK’s ambassador in retaliation for British support for tougher sanctions on Tehran over its nuclear programme.
Hundreds of protesters stormed embassy compounds two days later, smashing windows, torching cars and burning Union flags.
The UK responded by closing the Iranian embassy in London later that month.
But following the election of Rouhani and an agreement on how to deal with Iran’s nuclear programme, the then Foreign Secretary, William Hague, proposed the reopening of the embassy in June last year.
Since then, the reopening of the embassy had been held up by technical problems over visa policy and communications equipment, Mr Hammond said.