Etherington, who was 2-for-9 from beyond the arc coming into the game this season, hit a huge 3-pointer from the left corner with 1:22 to play that put IU back on top at 73-72.
And Howard, though just playing 6 minutes to spell Vonleh, had four points and three rebounds. His four points all came from the free throw line as he battled on the boards.
No matter who the heroes were the end result was the only important statistic for the Hoosiers. After dropping back-to-back games to Illinois and Michigan State to open Big Ten play, IU went on the road and picked up its first conference victory.
The Hoosiers (11-5, 1-2 Big Ten) now return home to play top-5 ranked Wisconsin Tuesday at Assembly Hall.
Indiana dug a major hole in the first half but whittled away at the Penn State lead and only trailed by four points at the break. Less than 5 minutes into the game, Penn state led 17-4. That lead was up to 15 at 31-16 with 9:13 to play in the first half.
But the Hoosiers went on a 12-4 run to end the half and closed to within four at 41-37.
Indiana's first lead of the game came with 16:36 to play on a 3-pointer from the right corner off an inbounds play from Will Sheehey. Sheehey had nine points on 3-of-10 shooting and was 1-of-4 from 3-point range. But that was a big one.
Later, IU would open the lead to as many as six on two occasions. The second one came off a 3-pointer in transition by Ferrell and gave IU a 59-53 edge with 7:36 to play.
Penn State (9-8, 0-4) wouldn't go away and came back to lead by three at 68-65 with 3:37 remaining.
Indiana did a nice job of executing down the stretch. A perfect pick-and-roll play between Vonleh and Ferrell resulted in a Vonleh dunk to tie the game at 70 with 2:12 to play. Etherington's 3, on a swing pass from Sheehey, gave IU the 73-72 lead.
And the Hoosiers' final six points came from the free throw line, four by Ferrell and two by Vonleh.
D.J. Newbill, who had 24 points to lead Penn State, had a chance to tie at the end of the game but missed a 3-pointer in the closing seconds from the right wing.
Vonleh, who scored the game's first 12 points, had a career-high 19 including a pair of 3-pointers to lead the Hoosiers.
Follow Terry Hutchens at Twitter.com/Foxsportshutch