The 267-page report stated that the Hall of Fame coach and other senior officials "concealed critical facts" about Jerry Sandusky's child abuse because they were worried about bad publicity.
The report was the result of an eight-month inquiry by former FBI director Louis Freeh, who was hired by school trustees weeks after Sandusky was arrested in November to look into what has become one of sports' biggest scandals.
"Our most saddening and sobering finding is the total disregard for the safety and welfare of Sandusky's child victims by the most senior leaders at Penn State, the most powerful men at Penn State failed to take any steps for 14 years to protect the children who Sandusky victimized," Freeh said.
At least one of Sandusky's victims said through their lawyer that after reading the report, they are ready to launch a lawsuit against Penn State.
According to the report, Paterno, president Graham Spanier, athletic director Tim Curley and vice president Gary Schultz "failed to protect against a child sexual predator harming children for over a decade."
"In order to avoid the consequences of bad publicity, the most powerful leaders at the university - Spanier, Schultz, Paterno and Curley - repeatedly concealed critical facts relating to Sandusky's child abuse," the report said.
In a statement, Paterno's family strongly denied he protected Sandusky for fear of bad publicity.
"The idea that any sane, responsible adult would knowingly cover up for a child predator is impossible to accept. The far more realistic conclusion is that many people didn't fully understand what was happening and underestimated or misinterpreted events," the family said. "Sandusky was a great deceiver. He fooled everyone."
Sandusky is awaiting sentencing after being convicted last month of 45 criminal counts. The scandal led to the ouster of Paterno and the school's president. In Janurary, Paterno died as the winningest coach in NCAA division I football history, but now many are questioning that legacy.
Nike co-founder Phil Knight has been a loud defender of Paterno throughout the process. For years, the company outfitted Penn State teams and even named the child care center at its corporate headquarters after Paterno. But after the report was released Thursday, Nike announced that it was taking Paterno's name off its child care facility.
The Associated Press contributed to this report.