The version 1.70 update means that users can now download PlayStation format software that is compatible with the PS3. Downloaded games can be accessed via the XMB media bar home menu.
The same also goes for compatible games previously purchased for use on the PlayStation Portable, which are now compatible with the PS3.
PlayStation Portable games that have already been purchased can be downloaded to the PS3 without additional cost, although newly compatible PS1 titles are priced at US$5.99.
Unfortunately the new update is not yet available to European PlayStation 3 owners.
Ten games are now PSP and PS3 compatible, including 2Xtreme, Crash Bandicoot, Destruction Derby, Jet Moto, Jumping Flash, MediEvil, Rally Cross, Syphon Filter, Tekken 2 and WipeOut.
The man who created Sony's legendary games console retired from the company last week.
Honourary chairman Ken Kutaragi announced his departure as rival Nintendo released figures showing big profits.
The PlayStation 3 has been hit by delays and technical problems and has not proved popular with consumers because of its high price tag.
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