Wallace was dismissed during last Tuesday's 3-0 win at Ibrox after referee Paul Robertson ruled he had denied an opponent an obvious goalscoring opportunity.
The appeal was heard by the Scottish Football Association's fast track tribunal on Thursday, and the offence was reduced to a yellow card for unsporting behaviour.
The decision means the left-back - who scored in last night's 3-0 win over Clyde - will be available for Saturday's Irn-Bru Third Division game against Queen's Park.
An SFA statement confirmed: "Upon reviewing the incident, the match referee, Paul Robertson, stood by the awarding of a penalty kick but considered that the incident did not deny an obvious goalscoring opportunity.
"The tribunal accepted this view and upheld the player reference, reducing the offence to a caution for unsporting behaviour (holding or pushing an opponent)."
- Sports & Recreation
- Paul Robertson
- Scottish Football Association