Tesla has agreed to make changes to its Passenger Play feature that allowed games to be played on its touchscreen while the car is in motion.
It follows an investigation launched by the US National Highway Traffic Safety Administration (NHTSA).
The agency said it had been informed by Tesla that a software update would disable the feature while driving.
Elon Musk's car firm had faced criticism that the feature was dangerous.
The New York Times reported that Tesla had contacted the NHTSA directly.
"Passenger Play will now be locked and unusable when the vehicle is in motion," the agency told the paper.
Tesla has not issued any formal statement on the matter.
Announcing its inquiry, which opened earlier this week, the NHTSA said that Passenger Play "may distract the driver and increase the risk of a crash".
Although the ability to play games on the car's touchscreen was not aimed at drivers, and asked the person playing to confirm they were a passenger, there was nothing to prevent a driver using it.
Initially the feature was only usable when the car was stationary, but this was changed in December 2020 to allow gameplay when the car was moving.
The change was noticed by one Tesla owner, Vince Patton, who filed a complaint with the NHTSA describing it as "recklessly negligent".
When it opened its inquiry, the NHTSA noted that the feature "may distract the driver and increase the risk of a crash".
Its guidelines state that in-car devices have to be disengaged so that they cannot be used by the driver "to perform inherently distracting secondary tasks while driving".
This month, it reported that 3,142 road deaths in 2019 were attributed to distracted drivers.
In August, the agency launched an investigation into Tesla's Autopilot system after a dozen cars using the feature crashed into parked emergency vehicles.
And it is also reviewing other accidents involving the system.