Godfrey, who suffered a season-ending ACL injury in the second game last season, was scheduled to count $7.1 million against the cap.
According to a league source, Godfrey's base salary was reduced from $5 million to $750,000 with the possibility to make up to $1.7 million in roster bonuses of $106,250 per game.
The Panthers signed former Atlanta safety Thomas DeCoud as insurance during free agency. DeCoud will count $1,418,750 against the cap this season.
Godfrey had three years left on his deal that would have counted $7.1 million against the 2014 and 2015 cap and $6.4 million against the $2016 cap.
Had Godfrey not restructured, the Panthers had the option of cutting him, with a June 1 designation to save $5.1 million against the cap.
Coach Ron Rivera said at the NFL owners meeting he wanted to keep Godfrey, suggesting the third-round pick in the 2008 draft could play nickel back as well as safety.
Middle linebacker Luke Kuechly, the reigning NFL Defensive Player of the Year, gave Godfrey a strong endorsement recently during offseason workouts.
"A guy that has been very constant, is going to work hard, he's knows what's going on and I just generally enjoy being around Charles,'' Kuechly said. "So it will be good to have him back.''