Palo and another man, Spencer Cruise, 21, of Ames, were charged with second-degree sexual abuse. They were jailed after surrendering to authorities Friday morning, though Palo was later released.
According to the criminal complaint, the men offered to give a woman a ride home on May 18 but instead drove her to a home owned by Cruise's family and "committed a sex act by force against the victim's will."
Evidence gathered at the scene was sent to the state crime lab and both men's DNA was identified in the evidence, Ames Police Sgt. Rory Echer said.
"That's why the length of period, from May to now. We just recently got the test result of that," said Echer, who declined to release other details.
Coach Fred Hoiberg said the 21-year-old reserve point guard from Ames was suspended indefinitely.
"I am extremely disappointed to learn of this allegation," Hoiberg said in a statement released by the university. The athletics department would continue monitor the situation before making further decisions regarding Palo's status.
Palo was released from the Story County jail. During an initial court appearance at the Story County Courthouse in Nevada, a judge granted him pre-trial release and issued a no-contact order with the alleged victim. A message left by The Associated Press for his attorney, Matt Boles, was not returned Friday afternoon.
Spencer, who appeared in court with his attorney, Joe Cahill, remained in jail on $25,000 bond. A message to Cahill was not returned.
Palo won a state title for Ames High School in 2009 on a team that included Golden State Warriors forward Harrison Barnes and Creighton star Doug McDermott. Palo, a walk on in 2009, quickly earned a spot in Iowa State's rotation off the bench.
Palo was a first-team Academic All-Big 12 selection last season and was given a scholarship by Hoiberg in 2012. He averaged 4.0 points last season.
Palo was expected to back up Michigan State transfer Korie Lucious in 2012-13.