Bush, 84, was admitted to Houston's Methodist Hospital Saturday for undisclosed symptoms and put through a battery of blood tests and imaging studies. The results left doctors "puzzled by the illness," a family spokesman said.
Doctors "narrowed it down" late Tuesday and ultimately diagnosed a recurrence of the thyroid condition, which first struck Bush 20 years ago and for which she has continued medication.
Heartbeat irregularities caused by the disease can lead to cardiac arrest in older patients in some situations.
Hospital doctors have adjusted Bush's prescriptions and she's expected to make a full recovery, Houston Methodist said in a statement.
Jean Becker, chief of staff to former President George H.W. Bush, said the president was by his wife's side all week and that the entire family is pleased with the results
"Upon discharge, she was alert, talkative and appeared to be getting stronger as she prepared to return home," hospital spokeswoman Stefanie Asin said.
Graves' disease, which is not life-threatening, causes mood and body changes when the immune system "mistakenly attacks" the thyroid gland, causing overproduction of the hormone thyroxine, according to the Mayo Clinic.
Symptoms of the disease include anxiety, irritability, fatigue, rapid heartbeat, tremors of the hands and weight loss. Its cause is unknown.
"You're revved up, you can feel hot and sweaty and a racing heartbeat," thyroid expert Dr. Richard Robbins of Houston's Methodist Hospital said.
Graves' disease is "reasonably common," especially among women, and can "come and go," Dr. Robbins said. Women experiencing any of the symptoms should ask their doctor to get tested.
Bush was first diagnosed with Graves' in 1989 after she lost 18 pounds in three months.
She later began taking medication, including steroids, to treat the condition and received radiation therapy in 1990 for her eyes as part of the treatment.
Medication can cause long-term remission of the disease but relapse is "fairly common," according to the Mayo Clinic.
Until doctors were able to relate Bush's recent ailment to Graves' disease, speculation swirled about the seriousness of her condition.
Although the diagnosis was "not obvious," Becker said, no specialists from the University of Texas' MD Anderson Cancer Center were called in to see Bush.
Another Bush family spokesman, Jim McGrath, told reporters earlier this week that Bush is "in no pain, so there is no rush."
He also described her symptoms as not life-threatening but would not go into further detail at the time.
The former president drove his wife to the hospital near their Houston home Saturday morning and was by her side everyday, Becker said.
Other members of the Bush clan, including son Neil Bush and daughter Dorothy Bush Koch, also visited. The other Bush children, including former president George W. Bush, have called to check-in on their mother every day. The former 43rd president remained at his Crawford, Texas, ranch today.
Barbara Bush's medical history contains a number of conditions for which she has received treatment in recent years.