Baxter went through a full practice session Thursday morning, his second since coach Lane Kiffin announced his suspension for the team's Sept. 2 season opener against Hawaii for violating team rules.
The 18-year-old Baxter spent Tuesday on the sidelines working through individual conditioning drills, but did not participate in the team's full practice as punishment.
He rejoined the team Wednesday and will be allowed to practice moving forward while facing the suspension, something Kiffin stressed was vital to his growth.
"This isn't the end of the world for his career," Kiffin said. "He's just got to continue to develop. He's come out here with a great attitude and he needs to learn from this and not let it affect him going forward. He's still got 12 games to look forward to."
Kiffin addressed his players regarding the situation and came away feeling good about their response to the code of conduct to which he expects them to adhere.
"The strong message sent to our team was very powerful [Wednesday] night in our team meeting," he said. "I think they got the point of how serious we are of doing things right."
The incident is the second during training camp to have attracted negative attention. Starting fullback Stanley Havili was suspended for a day following an altercation with teammate T.J. Bryant that resulted in Bryant suffering a broken cheekbone.
Kiffin let his players know their actions are magnified as a result of major NCAA sanctions imposed earlier this year on USC, including a two-year bowl ban, scholarship restrictions and four years of probation.
"We're in an extremely sensitive national environment with our program," Kiffin said. "That's why we talk to our guys all the time about making the right decisions because everything they do is going to be blown up and bigger than what other people do at other places."
Baxter is expected to play a large part in USC's game plan, given his ability to create mismatches at various spots on the line of scrimmage.
Baxter, who enrolled early at USC in January, has also surprised coaches with his ability to digest the team's offense at a rapid pace.
"Dillon has really picked things up really well," Kiffin said. "Even the high standards we hold, it's even surprising for us for a guy that young to be able to pick up mentally all the things we ask him to do."
Kiffin previously said he hasn't decided whether Baxter will travel with the team to Hawaii, but is anticipating his return for the Trojans' home opener against Virginia on Sept. 11.