The Big Ten team's opponent in the Dec. 29 game in San Antonio will be a team from the Big 12, likely Texas A&M or Texas Tech.
Penn State, which was 8-4 this season, played in the Alamo Bowl once before, defeating Texas A&M 24-0 in 1999.
"We're delighted to have the opportunity to return to the Alamo Bowl," Penn State Athletic Director Tim Curley said.
"The Alamo Bowl has been a great partner with the Big Ten and all the conference schools, and we're excited about returning to San Antonio."
The 80-year-old Paterno has been Penn State's football coach since 1966. His teams have appeared in 33 bowl games, winning 22.