"The CAS decided to reduce their period of ineligibility to six months, which has been already served," the global court said in a statement on its website.
CAS said it would announce a reason for its decision in a few weeks.
Powell and Simpson, who had tested positive for a stimulant last year, both said they were elated with the decision.
"I feel total relief and that we have finally been vindicated," Simpson said in a statement. "Our actions were not intentional and CAS has recognised that. I am truly thankful."
Powell added: "I always felt that the 18 months was not in line with a first time positive test result and it being proven it came from a tainted supplement."
Jamaican officials said they would abide by the decision.
"We see and note the ruling by CAS and we will abide by the ruling as it is from the final court," Jamaica Anti-Doping Commission executive director Carey Brown told Reuters.
A Jamaican anti-doping disciplinary panel had suspended former 100 metres world record holder Powell and 2008 Olympic 100m silver medallist Simpson for 18 months after they had tested positive for the stimulant Oxilofrine at the 2013 Jamaican world championships trials.
The sprinters appealed and CAS granted a stay of the decision, allowing them to run beginning last month while it decided the case.
Simpson ran at the Jamaican championships last month and both she and Powell, who has not yet run because of a tight hamstring, are scheduled to compete on Tuesday in Lucerne, Switzerland.
Their original suspensions had been scheduled to expire in December.
The CAS ruling marked the second time in three months it has reduced a doping suspension imposed by a Jamaican anti-doping disciplinary panel.
CAS in May cut 18 months from a six-year ban imposed on Jamaican 400m runner Dominique Blake.
Earlier this year, CAS also dismissed a two-year ban imposed two-time Olympic 200m gold medallist Veronica Campbell Brown by the International Association of Athletics Federations (IAAF) and the Jamaica Athletics Administration Association (JAAA).
It said there were flaws in the testing procedure by the Jamaica Anti-doping Commission.
JAAA president Warren Blake said he was happy the sprinters were free to compete.
"The disciplinary committee will have to look at the ruling and hopefully learn from the rulings and judgments and use that to decide how to proceed if they are any future cases," Blake told Reuters.
- Sports & Recreation
- Athletics, Track & Field