The 68-year-old was sentenced to 23 years in jail for killing partner Bob Chappell aboard the couple's yacht, the Four Winds, on Australia Day 2009.
Her non-parole period expired on August 20, and on Friday, she was notified that parole had been granted.
Neill-Fraser is expected to be released from custody in the coming weeks.
But a spokesman for Corrections Minister Elise Archer said it would be eight weeks before the parole board published its decision.
Social media erupted after the Neill-Fraser would finally be granted her freedom, but supporters said the fight to clear her name would continue.
"At long last, after all these years Sue finally gets to go home," Rosie Crumpton-Crook told AAP.
"The news came through on (Friday afternoon) and it is wonderful."
Neill-Fraser has been fighting for justice since her conviction and previously indicated she would remain in prison while her conviction stood.
"She has always maintained she will not leave prison until her name has been cleared, but we have managed to persuade her that the time is right for her be reunited with her family," Ms Crumpton-Crook said.
"She has grandchildren born while she was in prison and she will be really looking forward to spending time with them and her loved ones."
Ms Crumpton-Crook said Neill-Fraser had been demonised since Mr Chappell went missing.
"There have been so many vile rumours and she has been treated so unfairly."
Neill-Fraser has been involved in a bitter legal fight to clear her name, only to be finally granted her freedom after serving her sentence.
Neill-Fraser was found to have attacked Mr Chappell and dumped his body in Hobart's River Derwent but has maintained her innocence. Mr Chappell's body has never been found.
Former premier and attorney-general Lara Giddings, a staunch supporter of Neill-Fraser, welcomed the parole decision.
"It will be better for her to fight to prove her innocence on the outside than it was inside prison," she told AAP.
But Ms Giddings said it would take a commission of inquiry to "get to the truth" and help identify systemic issues.
"If we do not stop and learn from the case, it is only a matter of when the next innocent person is found guilty of a crime they did not commit," she said.
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