Allen, a junior considered one of this year's top quarterback prospects, made the announcement shortly after the Cowboys' 37-14 win over Central Michigan in the Famous Idaho Potato Bowl in Boise.
With Denver Broncos president of football operations John Elway in attendance, Allen finished 11-of-19 for 154 yards with three touchdowns and no interceptions.
Allen is rated the No. 3 draft-eligible quarterback by ESPN draft insiders Mel Kiper and Todd McShay; Kiper ranks him the No. 11 overall prospect, and McShay ranks him No. 15. McShay has Allen going to the Broncos at No. 5 in his latest mock draft.
UCLA's Josh Rosen and USC's Sam Darnold are currently ranked ahead of Allen by ESPN's Kiper and McShay.
Allen's decision to play Friday went against the current trend of top prospects skipping bowl games to begin preparing for the draft. He said he felt like he "owed" it to head coach Craig Bohl and quarterbacks coach Brent Vigen to play.
"Coming all the way from one scholarship offer, you know, Coach Bohl and Coach Vigen, they believed in me when I came out of junior college," Allen said. "I felt like I owed them at least one more game here. Football's a part of me. If I'm not playing, then I'm not me. So I've gotta be on the field at all the times, because I love this team, I love this game and I love the Cowboys."
Bohl was also quick to praise Allen for playing in the bowl game.
"In today's world, where players are making all kinds of decisions about bowl games, Josh chose to play, and I applaud him for that," Bohl said. "If there's any NFL team looking for a player out there, you're never going to find a bigger competitor and a better leader than him."
After throwing for 3,203 yards with 28 touchdowns and 15 interceptions as a sophomore, Allen endured a very up-and-down junior campaign. He finished the year with just 1,812 yards and threw 16 touchdowns and 6 interceptions. A year removed from averaging 228.8 yards per game and 8.6 yards per attempt, Allen dipped to just 164.7 yards per game and 6.7 yards per attempt. He was also held under 100 yards passing in three games this season.
Allen's production also dipped because he missed the final two games of the regular season after suffering a shoulder injury at Air Force on Nov. 11.
However, Allen returned to the field Friday to display one of his most impressive performances of the season. He got off to a hot start, passing for 104 yards and three touchdowns in the first quarter. Allen entered the day with just one total first-quarter touchdown on the season.
With Wyoming's defense keeping Central Michigan out of arm's reach in the second half, Allen wasn't asked to throw the ball much in the final two quarters. Friday marked the ninth time Allen has thrown for at least three touchdowns in a game during his Wyoming career.