Trump explained his decision on social media by posting that "according to many people that I greatly respect", Hernandez was "treated very harshly and unfairly".
In March 2024, Hernandez was convicted in US court of conspiring to import cocaine into the US.
He had served served two terms as the leader of the Central American nation of roughly 10 million people.
Hernandez has been appealing his conviction and serving time at the US Penitentiary, Hazelton in West Virginia.
Shortly after Trump's announcement, Hernandez's wife and children gathered on the steps on their home in Tegucigalpa and kneeled in prayer, thanking God that Hernandez would return to their family after almost four years apart.
It was the same home that Honduran authorities hauled him out of in 2022 just months after leaving office.
He was extradited to the United States to stand trial.
Hernandez's wife Ana García Carias thanked Trump, saying Trump had corrected an injustice, maintaining that Hernandez's prosecution was a co-ordinated plot by drug traffickers and the "radical left" to seek revenge against the former president.
The post was part of a broader message by Trump backing Nasry "Tito" Asfura for Honduras' presidency, with Trump saying the US would be supportive of the country if he wins the election on Sunday.
Asfura, 67 and a former mayor, is making his second run for president for the conservative National Party, pledging to solve Honduras's infrastructure needs.
But he has previously been accused of embezzling public funds, allegations that he denies.
Trump has framed Honduras' election as trial for democracy, suggesting in a separate Truth Social post that if Asfura loses, the country could go the way of Venezuela and fall under the influence of that country's leader, Nicolas Maduro.
Trump has sought to apply pressure on Maduro, ordering a series of strikes against boats suspected of carrying drugs, building up the US military presence in the Caribbean with warships including the navy's most advanced aircraft carrier, USS Gerald R Ford.
The US president has not ruled out taking military action or covert action by the CIA against Venezuela, though he has also floated that he was open to speaking with Maduro.
Outgoing Honduran President Xiomara Castro has leaned into a leftist stance, but she has kept a pragmatic and even co-operative attitude in dealing with the Trump administration.
The president has even backed off his threats to end Honduras' extradition treaty and military co-operation with the US.
