The shooter first killed a man and wounded two others at PJ Harrigan's bar about two miles from the campus, according to the Chief of Police at John Gardner State University
The two injured are in critical condition, police said.
The suspect fled the scene, hit his car and entered a house, where he shot and killed an 82-year-old man as the victim's wife. Gardner locked himself in the bathroom and dialed 911.
The suspect, identified by the central county coroner's office as Jordan Witmer, 21, had been shot dead when police arrived at the house, police said.
The man who died at the bar was identified as Dean Beachy, 62, and the man who was shot dead at his home was George McCormick, 82, according to the coroner's office.
It is unclear if the suspect knew any of the victims, said the coroner.
"We're still trying to reconstruct this tragedy and try to make sense of it, but the more I think about it, there's no point," Gardner told reporters.
"It's Happy Valley, we like to think these things do not can happen, here, "said Gardner. "But one of the things that you realize is that it can happen here and that it happens here, I guess it's a sign of the times in the world we live in."
Some Penn State students posted on Twitter their frustration over the fact that the university could not send the updates as the shooting went on.
Penn State said in a statement Friday: "We understand that the tragic events that occurred last night may have instilled fear and concern in the members of the campus community We are deeply saddened by the senseless acts of violence that have occurred and our thoughts are with the victims and their families. "
" The university police, working with the State College police, was monitoring the rapid development of the Campus Incident, "the university statement continued. "After careful consideration based on the circumstances known to the police at the time, the location of the incidents and the lack of an imminent threat to Penn State students or the campus, it was decided that an alert would not be sent."
Penn State said the decision to send alerts is "case by case."
"We always review our responses to these incidents and adjust our processes as necessary," the university said.
ABC News' Will Gretsky and Ahmad Hemingway contributed to this report.