Williams signed five-year, $43 million contract a few years ago and was scheduled to make $5 million for the 2013 season.
The new agreement will still pay him the $5 million, but will instead reduce his cap figure of $8.2 million by $3.2 million. Carolina now sites $8.46 million under the adjusted 2013 salary cap number.
The Panthers also reduced his $4.75 million in non-guaranteed base salary $850,000 with the difference of $4 million being converted to a signing bonus, which will be prorated over the remainder of his contract.
Williams, 30, was reportedly on the trading block last year, but the team found very little interest in him. Jonathan Stewart figures to be their No. 1 running back this season with Williams competing for the No. 2 job along with Mike Tolbert and Kenjon Barner.