Counties will revert back to playing only one overseas player at any one time from the 2008 season. The England and Wales Cricket Board unanimously agreed to the reduction from two players to one.
Counties only increased the number in 2003 but said it had become increasingly difficult to attract a second overseas player for a season.
From 2008 only one player can be registered at a time but clubs can replace them with certain limits.
If they are injured, are called up for an overseas tour at short notice or required to return home by their board, they can be replaced.
A maximum of four overseas players will be able to be registered by a county in one season.
An ECB statement said: "During a consultation process led by ECB deputy chief executive Hugh Morris it became clear that an overwhelming number of counties supported the reduction from two to one overseas player.
"As well, counties wished to provide more opportunities for talented players qualified for England."
The Professional Cricketers' Association welcomed the change.
Chief executive Richard Bevan said: "Having two overseas players has created unsustainable financial pressures for counties, so we believe this change is very sensible.
"Our members felt that having two excellent international players per county would benefit the game, but the practical reality is that such stars cannot commit to the full English season due to the demands of their international schedules."