Paterno's tumour was showing substantial reduction following radiation and chemotherapy, according to the person who spoke on condition of anonymity Monday to The Associated Press due to the family's desire for privacy. He was released Sunday.
Paterno, who turns 85 on Wednesday, was admitted last week after breaking his pelvis again in a fall at home. Doctors kept him hospitalized to make it easier to administer cancer treatments while he recovered from the fracture.
He initially injured his pelvis and right shoulder in August after getting blindsided accidentally by a receiver during pre-season practice. The injuries kept Paterno in the press box most of the season before trustees fired him Nov. 9 in the aftermath of child sex abuse charges against retired assistant coach Jerry Sandusky.
Paterno testified before a grand jury investigating Sandusky, but prosecutors have said he is not a target of the investigation. Sandusky, who has pleaded not guilty, is awaiting trial.
Paterno hasn't spoken publicly since his firing. He was diagnosed with cancer several days later during a follow-up visit to the doctor for a bronchial illness, his family has said.
The person close to the family told the AP on Monday that Paterno was in great spirits while continuing to fight the illness.
Earlier Monday, Penn State fullback Michael Zordich said a few players visited Paterno in recent weeks.
"He's a strong person, a fighter, a leader," Zordich said before practice. "He's been going through a lot right now ... We're giving him space, and we'll go see him when can. Hopefully we can get there soon."
Longtime defensive co-ordinator Tom Bradley said he has not spoken with Paterno since the day after he was appointed the interim head coach. Bradley, who is applying for the job permanently, gets updates from Paterno's son, quarterback coach Jay Paterno.
"I know what (Joe Paterno) is going to say. 'Tom, you're wasting your time. You know what you've got to do,'" Bradley said Monday.
Paterno has called the allegations against Sandusky troubling and urged the public to let the legal process unfold. He initially announced his retirement taking effect at the end of the season.
In his retirement statement, Paterno called the scandal "one of the great sorrows of my life. With the benefit of hindsight, I wish I had done more." The trustees fired him anyway, about 12 hours later.
The Nittany Lions' head coach for 46 seasons, Paterno amassed 409 career victories — a Division I record.
ESPN, citing an anonymous source, first reported Paterno's release.