The Psychiatric Nurses Association has suspended the indefinite overtime ban which had been due to come into effect this evening.
The dispute between the union and the Health Service Executive has now been referred to the Labour Court.
It involves 6,000 psychiatric nurses and centres on pay and staff shortages.
Yesterday, the PNA announced that it would recommence its overtime ban from this evening following the collapse of talks at the Workplace Relations Commission on Monday.
The PNA held a board meeting today to consider what it said was "a new approach from the Workplace Relations Commission" and decided to suspend the action.
It is understood that a proposal in relation to the row was made by the HSE last night.
The HSE has welcomed the suspension of the overtime ban.
In a statement it said the industrial action "would have had a very significant impact on vulnerable patients in locations across the country".
It said it "strongly supports the referral of the outstanding matters to the Labour Court".
Last year, the HSE spent €16 million on agency nurses and a further €15.8 million on overtime to plug staffing gaps in mental health services.
The PNA has accused the Government of failing to take the recruitment and retention crisis seriously, pointing to 700 staff vacancies and nurses transferring abroad or to the private sector here for better conditions.