The jury in the trial will see evidence that shows Neely was unarmed, the judge said in a written opinion issued Thursday.
The defense had sought to preclude evidence or testimony about the lack of a weapon recovered from a search of Neely's body but Judge Maxwell Wiley said such evidence and testimony is relevant to the case.
"The fact that Mr. Neely was unarmed provides additional relevant information to aid the jury, namely, it clarifies what could have been perceived by someone in the defendant's position," Wiley said. "The possibility that a person in the defendant's situation could have been reasonable in mistakenly believing that Mr. Neely had been armed is appropriate for consideration by the jury and well within their capability."
The defense worried that including evidence that Neely was unarmed could bolster sympathy for the victim, but the judge said it would help the jury decide whether Penny's actions were justified.
"The defendant's perception of the decedent, Mr. Neely, is central to that analysis, and as such, whether he was armed, or reasonably could have been perceived to have been armed, is relevant to a fact in issue, to wit, that Mr. Neely presented the threat of either physical force or deadly physical force prior to the defendant taking action," the opinion said.
A jury of seven women and five men were seated Wednesday.
Penny has pleaded not guilty to the charges of second-degree manslaughter and criminally negligent homicide in Neely's death.
The trial is expected to last between four and six weeks, according to Judge Max Wiley.
ABC News contributed to this report.
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