The article has been used to prosecute hundreds of writers, including Nobel Literature Laureate Orhan Pamuk, for insulting Turkishness.
The reform makes it a crime to insult the Turkish nation, rather than Turkishness, and the justice ministers permission will be required to open a case. The maximum sentence is cut to two years from three.
The EU has said easing restrictions on free speech is a test of Turkeys commitment to political reform as Ankara looks to advance slow-moving membership talks which began in 2005.
Armenian-Turkish editor Hrant Dink, shot dead by an ultra-nationalist youth last year, had been convicted under article 301.