The jury deliberated for 45 minutes before returning its verdict.
Penry, 45, has spent half his life locked up, for killing Pamela Moseley Carpenter in 1979 at her home in Livingston.
He was twice sentenced to death, but both sentences were overturned by the U.S. Supreme Court, most recently last June. His murder conviction stands, meaning the only question a trial jury will answer at the third sentencing hearing is whether Penry deserves life in prison or lethal injection.
But another case pending with the U.S. Supreme Court could still affect the Penry case. The high court is considering a Virginia case that questions the constitutionality of executing the mentally retarded. A ruling in that case is expected by June.
During closing arguments Thursday morning, defense attorneys emphasized the helplessness of Penry, who likes coloring books and says he still believes in Santa Claus.
"This is not the usual case where a defendant comes up with a scam after he gets into trouble with the law," attorney Julia Tarver told jurors. "He's not able to do things you and I do all the time without ever thinking about it."
Prosecutors, however, said they did not believe Penry was mentally retarded and accused his lawyers of trying to raise standards for mental competency in Texas beyond what the law provides.
"He knows what's at stake," Polk County District Attorney William Lee Hon said during closing arguments. "He's sophisticated enough to know if you find him incompetent, he can't be tried."
Death penalty opponents have pointed to Penry as a reason why Texas should prohibit executions of mentally retarded people. A bill to ban such punishment was approved in the Legislature last year but Gov. Rick Perry vetoed it.
Juries previously have found Penry competent in 1980 and again in 1990.
Penry's IQ was tested to be in the 50s and low 60s on a scale where 70 is considered mentally retarded. Jurors were asked to decide whether he has "sufficient present ability to consult with his lawyer with a reasonable degree of rational understanding."
Hon said the law established a minimal standard for mental competence because "criminals - as a general rule - aren't very bright."
Jurors heard six days of testimony from psychologists and psychiatrists, who had differing opinions on Penry's retardation. They also heard from corrections officers who said Penry could follow rules, read and write and discuss legal aspects of his case.
"What is more credible, people around him every day or some psychologist talking about a battery of tests?" Hon said.
But John Wright, one of Penry's lawyers, countered, "There are simply some people who don't belong in the criminal justice system."
A separate jury would consider the penalty phase at a future date.
Penry was on parole for rape when he was charged with killing Carpenter, the 22-year-old sister of former Washington Redskins kicker Mark Moseley. She was stabbed in the chest with scissors and raped but was able to describe her attacker before she died.
In 1986 and again in 2000, Penry was taken to a cell a few feet from the death chamber to await lethal injection. Both times he was granted a last-minute reprieve.