The striker has been central to the USA's run through the tournament.
He was sent off against Bosnia and Herzegovina for a studs-up challenge on Tarik Muharemovic's calf and ankle.
Under Article 10.5 of the competition's regulations, that offence usually carries an automatic one-match ban, one that would have kept him out of the last-16 tie.
FIFA had earlier stated that neither a red card nor its resulting suspension could be appealed.
Yet The Athletic reports the ban has now been lifted, freeing Balogun to line up against Rudi Garcia's Belgium, who edged past Senegal 3-2 in the previous round.
US President Donald Trump weighed in on the decision, thanking football's governing body for what he described as correcting a "great injustice".
Posting on Truth Social, he wrote: "Thank you to FIFA for doing what was right, and reversing a great injustice! President DONALD J. TRUMP."
FIFA's own disciplinary code allows for some flexibility around suspensions of this kind.
It states: "The judicial body may decide to fully or partially suspend the implementation of a disciplinary measure. If the person benefiting from a suspended sanction commits another infringement of a similar nature and gravity during the probationary period, the suspension shall be revoked by the judicial body and the sanction enforced without prejudice to any additional sanction imposed for the new infringement."
Explaining its reasoning, FIFA issued a formal statement on the case.
It read: "The FIFA Disciplinary Committee has imposed the following sanction on United States national-team player Folarin Balogun, who was sent off as a result of a direct red card during the FIFA World Cup 2026 match between the United States and Bosnia and Herzegovina played on 1 July 2026 at San Francisco Bay Area Stadium.
"One-match suspension for breaches of articles 14 and 66 of the FIFA Disciplinary Code. In line with article 27 of the FIFA Disciplinary Code, the implementation of the match suspension is suspended for a probationary period of one year.
"If Folarin Balogun commits another infringement of a similar nature and gravity during the probationary period, the suspension shall be revoked and the sanction enforced without prejudice to any additional sanction imposed for the new infringement."