The new policy conforms U.S. security standards to international standards, and allows TSA to concentrate its energies on more serious safety threats, the agency said in a statement Tuesday.
On Wednesday, the changes were met with mixed opinions by travelers at Chicago's O'Hare Airport.
"Even liquids we cannot transport. Now we're going be able to transport knives? That doesn't make any sense," said Sheila Van Leyen, air passenger.
"It was pointless before. If you bring a little pocket knife, and you have to leave it at the desk, you can't do much damage," said Cyrus Bracey, air passenger.
The announcement, made by TSA Administrator John Pistole at an airline industry gathering in New York, drew an immediate outcry from unions representing flight attendants and other airline workers, who said the items are still dangerous in the hands of the wrong passengers.
But some say the new rules represent a shift in threat focus.
"I think that it actually is a good move. It'll allow for increased targeting of sophisticated explosive devices," said Jody Weis, ABC7 Public Safety Expert and Chicago's former top cop
Since 2001, millions of pocket knives have been confiscated at airport security checkpoints- so many that the government sells them on websites.
Flights attendants say allowing knives on planes endangers those in the cabin.
"Having knives on board is a horrible decision and we're incredibly disappointed in the TSA for allowing weapons onboard an aircraft," said Veda Shook, Association of Flight Attendants.
"Nobody is going to jump on a plane with a boy scout knife and take anybody hostage," said Tommy Mays, air passenger.
The easing of restrictions on small knives comes on the heels of other TSA changes, including allowing passengers 75 and over, and children 12 and under, to keep their shoes on through security.
Experts believe travelers could see even more changes in the future.
"I think two things likely come next: First is the fluids. That's been a major hassle for people. Second, we're seeing the phenomenon of having to remove the laptop out of your bag and put that separately. Foreign countries aren't doing that anymore," said Professor Joseph Schwieterman, DePaul University.
Razor blades and box cutters will still be banned.