Ms Prejean appeared in an advert for an anti-gay marriage group
Carrie Prejean is to be allowed to keep her Miss California title, in spite of allegations that she broke her contract by posing for semi-nude photographs.
Ms Prejean sparked controversy during the Miss USA pageant when she expressed her opposition to same-sex marriage.
Her subsequent public appearances on behalf of anti-gay marriage groups were also viewed as contract violations.
The decision to allow her to keep her title was taken by Miss USA pageant chief Donald Trump.
Mr Trump said he had reviewed the semi-nude photographs and determined that they were "risque" but "fine".
And he revealed that after long discussions, Ms Prejean's relationship with the Miss California pageant organisers was much improved.
Ms Prejean's comments about gay marriage at the Miss USA pageant attracted criticism from some gay marriage supporters.
Celebrity blogger Perez Hilton, a judge at the pageant who had asked Ms Prejean the question that prompted the comments, said that her remarks had cost her the Miss USA title.
Following the pageant, Ms Prejean sparked further controversy when she agreed to appear in a campaign advert produced by the anti-gay marriage group the National Organization for Marriage.
Critics said her appearance for the group was a violation of her contract.
When semi-nude photographs taken of Ms Prejean when she was a teenager surfaced, calls to strip her of her title increased.
But Mr Trump's decision means that Ms Prejean will be allowed to keep her crown.