The $380 million, seized by Swiss authorities in 2006, had been placed in several accounts abroad that were controlled by the Abacha family, which is considered a criminal organisation, the Geneva prosecutors' office said in a statement.
The decision to return the funds follows a July 2014 deal between Nigeria and the Abacha family.
Under the agreement, the funds would be confiscated and returned to Nigeria, while Abuja would drop its case against the deceased dictator's son Abba Abacha.
The $380 million will be returned under the World Bank's supervision, said the prosecutor's office.
The authorities have also decided to drop their case against Abba Abacha, which began in 1999.
Sani Abacha ruled oil-rich Nigeria with an iron fist from 1993 until his death in 1998.
Soon thereafter, Nigeria's new rulers asked Switzerland to help it recover $2.2 billion that he had reportedly stashed in European bank accounts. $500 million has already returned to Nigeria.