The change, which was approved in May by the International Basketball Federation (FIBA), came into effect on Sunday following a sustained online campaign.
Encouraged by the new rules, Muslim women say they are looking to break religious stereotypes through the sport.
"It's important because more people will see that Muslim women can play, do play and are willing to play," said Raabya Pasha, a member of the first all-Muslim women's team, the Falcons, in Leicester, UK.
"And even if we are covered up, it doesn't stop us from playing," she added.
The hijab is a headscarf worn by many Muslim women who feel it is part of their religion.
Following FIBA's approval in May, basketball players from across the UK came together to form the Falcons.
Having quit the sport because of their head covering, some are making a return and are hoping to inspire young girls.
"I think we're going to make a big difference," Falcons player Yaquin Drair said. "There are kids that can see us as role models to be able to play basketball."
The rule change came after a successful two-year-long online campaign that was aimed at overturning the ban.
A number of change.org petitions calling for a change to the rule garnered more than 137,000 signatures.
Asma Elbadawi, the woman behind the new Falcons team, was also one of the drivers of the social media campaign. She says she is optimistic about the future.
"We might not see it right now, but gradually, in elite sports, we're going to see more Muslim girls in basketball playing with the hijab, in college basketball for example in America, and in places, where basketball is aired,"Elbadawi said.
She added: "It will make a huge impact because the more people that are seeing women look like them playing, the more impact it will have on the wider community."
The rule change, which affects headgear for both men and women, follows the lead of other sports that have in recent years, allowed head coverings and other wear in sport, including football and weightlifting.
Source: Al Jazeera