The song, a popular staple at sporting events around the country, has lyrics that include a chorus of "touching hands, reaching out, touching me, touching you."
School officials confirmed the song will no longer be played at Penn State, which is about to begin its first football season since the Jerry Sandusky child sex abuse scandal rocked the school.
But PSU spokesman Gregory Myford insisted the song hasn't been "banned" because of the lyrics, the Philadelphia Daily News reported.
"Although the lyrics were brought up and discussed, to say the song was 'banned' because of the lyrics would not be accurate," he said.
Myford added school officials "hear from fans each year on whether or not we should continue it, given that it happens to be played in so many other professional and collegiate venues and has no real origination here at Penn State."
Diamond has said he wrote the song in the late 1960s after being inspired by a photo he saw of an 11-year-old Caroline Kennedy, daughter of President John F. Kennedy.