In case you have to do this operation on very large data.frames I would recommend converting it into a data.table and use the following, which should run much faster:
library(data.table)
dt <- data.table(df)
dt.expanded <- dt[ ,list(freq=rep(1,freq)),by=c("var1","var2")]
dt.expanded[ ,freq := NULL]
dt.expanded
See how much faster this solution is:
df <- data.frame(var1=1:2e3, var2=1:2e3, freq=1:2e3)
system.time(df.exp <- df[rep(row.names(df), df$freq), 1:2])
## user system elapsed
## 4.57 0.00 4.56
dt <- data.table(df)
system.time(dt.expanded <- dt[ ,list(freq=rep(1,freq)),by=c("var1","var2")])
## user system elapsed
## 0.05 0.01 0.06