Master Sgt. John Hatley, sentenced to life in prison in April, will instead receive 40 years, the military told the Associated Press.
He will still receive a dishonorable discharge and be reduced to the rank of private.
Sgt. Michael Leahy and Sgt. 1st Class Joseph Mayo - sentenced respectively to life in prison in February and 35 years in March - had their sentences reduced to 20 years, the military said. They will also receive bad conduct discharges instead of dishonorable discharges.
The sentence reductions came after a standard review of the cases, the Army said.
The soldiers were all with the 1st Battalion, 18th Infantry Regiment, 2nd Brigade, 1st Infantry Division while in Iraq. The unit is now part of the Germany-based 172nd Infantry Brigade.
According to court proceedings over the last year, the four Iraqis were taken into custody in spring 2007 after an exchange of fire with Hatley's unit.
The Iraqis were taken to the unit's base although there wasn't enough evidence to hold them for attacking the unit. Later that night patrol members took the Iraqis to a remote area and shot them, dumping the bodies in a canal.