A small Pennsylvania city will be able to use trees, vegetation, and other features that mimic nature to help reduce sewer overflows into the Conestoga River under a revised control plan that could save it up to $160 million.

Lancaster, a city of about 60,000, signed an agreement with the U.S. Justice Department that will allow it to incorporate elements of green infrastructure during the next few years—including green roofs, porous pavement, and roadside swales.

The...