The heiress was joined by the troubled actress at her Malibu Beach House over the weekend and is said to be thrilled to have finally buried the hatchet with Lindsay, who she has had a turbulent relationship with for over five years.
A source said: "Paris is very excited. She loved seeing her again."
Other guests at Paris' low-key party were stunned when Lindsay entered the room as few were aware there is no longer any animosity between them.
The insider told gossip website TMZ: "Everyone was so surprised when Lindsay walked in and we thought they didn't get along. But they immediately gave each other a big hug."
The group, which also included Paris' sister Nicky, actress Emma Roberts and 'Inception' star Lukas Haas, spent time at the beach and in the socialite's hot tub and later enjoyed a dance party, but the source insisted Lindsay - who has a history of alcohol and substance abuse problems - stayed sober throughout.
Just last month, Lindsay branded Paris "mean" after she poked fun at the actress' arrest over the theft of a necklace from an upmarket boutique.
In scenes broadcast in her reality show 'The World According to Paris', a homeless woman asked the socialite for a pair of earrings she was wearing,
Paris agreed but joked: "I'm not Lindsay. If I were Lindsay, I'd be stealing the earrings, not giving them away."
The actress was said to have taken the joke badly, telling a friend: "Paris is mean. You don't have to make fun of serious matters in people's lives to be funny."
The pair first fell out when Lindsay was accused of getting too close to Paris' former boyfriend STAVROS NIARCHOS.