'We will count on our champions to know when their playing careers at the Masters have come to an end,' chairman Hootie Johnson said.
Arnold Palmer and Jack Nicklaus, who have 10 green jackets between them and are the only Masters champions who are members at Augusta National, convinced Johnson to abandon his controversial policy.
The Masters gives its champions a lifetime pass to play in the tournament, but Johnson became increasingly upset when some of them withdrew after the first round, or sometimes after playing only one hole.
The policy was to start in 2004.
Palmer, 73, plans to play next week in the Masters and also next year, which would give him 50 appearances in the major championship he won four times.
'I had it in the back of my mind ... that I want to play competitively in the Masters for 50 years,' Palmer said in a statement. 'I am personally very pleased that will be possible now that the matter has been resolved as I hoped it would be.
'Jack and I are grateful to Hootie Johnson for his thoughtful consideration of this issue, and thank him on behalf of all of the past champions for retaining this important Masters tradition.'
While most of the focus this year has been on the all-male membership controversy at Augusta National, the champions policy was divisive in golf circles.
Three-time champion Gary Player said the Masters had broken a promise, while Gay Brewer was so angry about Johnson's letter last year asking him not to play that he refused to attend the annual Champions Dinner held Tuesday night of the tournament.
The letters sent to Brewer, Billy Casper and Doug Ford drew so much notoriety that when Palmer announced last year that he was playing in his final Masters, he joked, 'I don't want to get a letter.'
When asked last year if he regretted sending the letters, Johnson tersely replied, 'I don't look back.'
This time he did.
Johnson quoted from a 1970 letter that longtime chairman Clifford Roberts sent to Ben Hogan after he stopped playing in the Masters.
'While the right of each Masters Champion to play in the tournament should be preserved, I am wondering if we could not somehow get the word around among the group that anyone who no longer seriously tries to play in the tournament should not play at Augusta,' Roberts wrote.
Roberts, a co-founder of Augusta National with Bobby Jones, wrote in subsequent letters that past champions should at least play 36 holes to try to make the cut.
Johnson did not create any guidelines Monday, saying only that 'I am comfortable that the champions will abide by the spirit and intent of the lifetime exemption.'
Several Masters champions still active on the PGA Tour applauded the decision, especially because it cleared the way for Palmer to keep playing.
'Arnie is welcome wherever he wants to play,' two-time winner Bernhard Langer said. 'I think there will be a time when even Arnie will say, 'It's enough.' Whenever that time is, he will know.'
Tiger Woods, going after an unprecedented third straight Masters title, also said rescinding the policy was a 'great move.'
'We all know a couple of guys abused the privilege,' Woods said over the weekend. 'They would play one hole and withdraw or nine holes and withdraw. If you could play 36 holes, why not? That's the beauty of it.'