The forward was booked for simulation in the second half of Real's 2-0 win at Rayo on Wednesday, despite clearly being fouled by Antonio Amaya in the penalty area when the game was scoreless.
Real coach Carlo Ancelotti labelled the call from referee Mario Melero "unbelievable".
However, the Spanish Football Federation (RFEF) has agreed to remove the caution, freeing the Portugal international up to take on Eibar at the Santiago Bernabeu on Saturday.
The news comes as a boost to a Real side missing Toni Kroos and James Rodriguez through suspension.
Forward Gareth Bale appears likely to be rested ahead of Tuesday's UEFA Champions League quarter-final first leg against city rivals Atletico Madrid.
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