The President will reverse an initiative that threatened schools with the withdrawal of federal funding if they forced transgender students to use certain bathrooms against their will.
The landmark directive was issued by the Obama administration in May 2016 “to create and sustain inclusive, supportive, safe, and nondiscriminatory communities for all students”.
States and school districts will now be able to decide whether students should have access to bathrooms that do not reflect their biological sex.
On Tuesday, White House press secretary Sean Spicer said Mr Trump’s “view has been for a long time that this is not something the federal government should be involved in, this is a states’ rights issue”.
Sky News US Correspondent Amanda Walker said Mr Trump’s directive was likely to face widespread opposition.
She said: “For a lot of people it will be alarming about the direction of tone this administration is taking and the directives it may want to pursue in the future.”
During his campaign to become the Republican presidential nominee, Mr Trump said transgender people “should be able to use the bathroom that they feel is appropriate”.
However, the President changed his position after coming under criticism from fellow Republicans.
Legal experts said the change in policy could affect a Supreme Court case set to be heard next month, involving a transgender teenager who was denied access to a boy’s bathroom in Virginia.
While campaign groups welcomed Mr Obama’s directive last year, many Republicans dismissed it as an overreach of federal powers.
Texas lieutenant governor Dan Patrick claimed the move was “blackmail” and said his state would rather forfeit educational funding than comply with the guidance.
However, the former head of the Justice Department’s Civil Rights Division said talk of federalism overlooked the “vital and historic role that federal law plays in ensuring that all children are able to attend school free from discrimination”.
Some 150,000 American children (0.7%) aged between 13 and 17 identify as transgender, according to a study by The Williams Institute at the UCLA School of Law.