With the price reduction, the Prism drops from $399 to $299. The color handheld was introduced in October of last year.
The move, effective Tuesday, is the latest in a series of price cuts from Handspring and its rivals amid slow demand for handhelds.
Last month, for example, Palm cut the price of its high-end black-and-white model, the m500, by $70 to $329. In August, Handspring slashed the price of its slow-selling Visor Edge by $100 to $299.
IDC analyst Alex Slawsby said the price cut on the Prism could be a sign that new color models are on the way from Handspring, which has recently beefed up its monochrome product line.
Slawsby added that at $299, the Prism should be quite competitive. Its color screen is one of the best on any handheld that uses the Palm operating system, he said, better even than the screen on Palm's newer and pricier m505.
And at its new price, the Prism is cheaper than any other color-screen model except for Palm's IIIc, which is older and offers fewer colors.
"Obviously the color capabilities of the Prism are pretty good," Slawsby said. However, he added, "the form factor is a little bit long in the tooth."
Separately, Handspring said Tuesday that one of its partners is introducing a Springboard module that allows the Visor to act as a massager. The $99 Raycom Personal Massager from Raynet Technologies plugs into the Springboard expansion slot and comes with two gel pads that attach to the shoulders, back, arms or legs and produces a variable massage with "squeezing, chopping and tapping" motions.
Handspring also announced on Tuesday a promotion called Module Madness in which 10 of its developers are offering a 20 percent instant rebate on about two dozen add-on Springboard modules. That promotion, offered through online handheld retailer PalmGear.com, is slated to last until Nov. 6.