Tulchan appointed Davidson as a senior advisor last week, insisting she would not carry out any lobbying activities in her new role.
The move was condemned by rival MSPs and PRCA director general Francis Ingham, who said it was wrong for lobbying agencies to employ legislators and a potential conflict of interest.
Last night Ingham tweeted that Davidson should choose between remaining in the Scottish Parliament or stepping down as an MSP to take up the Tulchan role.
Today, Davidson said she has chosen Scottish Parliament (Holyrood) and advised Tulchan of her decision.
"I saw this role as an opportunity to help businesses improve their offerings to staff, raise standards in the supply chain, increase diversity and embrace environmental responsibilities," Davidson said.
"I sat down with Scottish Parliamentary officials in advance to go through the code of conduct, in detail, in order to avoid any conflict and to ensure I would be working within the rules at all times. The role reflected this.
"The consensus view from political opponents and commentators is that working to improve businesses’ understanding of the cares and concerns of people is somehow incompatible with my role as an MSP."
Tulchan senior partner Andrew Grant, who told PRWeek he believes the PRCA was "deeply conflicted" as a regulator, said he accepted Davidson’s decision.
"It is a great shame, as we believe that she would have encouraged business to be bolder in addressing the issues of concern to their stakeholders," Grant said. "Scotland, and the people of Edinburgh Central are lucky to have her."
Ingham welcomed the u-turn as "the right call in these challenging circumstances".
He added: "This is a good decision for the industry and for politics in general. Our Code of Conduct explicitly prohibits sitting MPs and MSPs from working for lobbying agencies. It’s reassuring that Tulchan Communications have supported her decision and reaffirms our belief that the public affairs industry is overwhelmingly ethical."