The NCAA said it would gradually restore scholarships to the football program, starting next season, and did not rule out reducing some of the other penalties.
Before Tuesday's announcement, Penn State faced a 65-scholarship cap for the 2014 season, which has now been increased to 75, 80 in 2015 and the full allotment of 85 in 2016.
"The executive committee's decision to restore football scholarship opportunities for more student-athletes at Penn State is an important recognition of the university's progress -- and one I know it was pleased to make," said NCAA President Mark Emmert.
In addition to the scholarship reduction, which had the potential to hamstring the program beyond the end of the sanction period, Penn State vacated wins from 1998 to 2011, paid a $60 million fine and is banned from postseason play from 2012 to 2015.
Coach Bill O'Brien was originally limited to signing 15 recruits from 2012 to 2015, but Tuesday's penalty reduction brings the allowance up to 20 for next year and 25 the year after.
In announcing the reductions, Emmert said the NCAA's decision was meant to recognize the school's "good-faith effort" to implement the FBI investigator's recommendations. While he said Penn State was unlikely to become bowl eligible this season, more reductions could be considered a year from now.
Jerry Sandusky, the former assistant coach at Penn State, was convicted in June 2012 of repeatedly molesting young boys over a 15 year period, and has been sentenced to serve 30 to 60 years in prison.