Yes, we can reduce the space of the TEMP datafile.
Prior to oracle 11g,you had to recreate the datafile.
In oracle 11g you reduce space of TEMP datafile by shrinking the TEMP tablespace.It is a new feature to 11g.
SQL Statement is:
SQL> alter tablespace YOUR_TEMP_TABLESPACE_NAME shrink space keep 256M;
The dynamic performance view V$TEMPSEG_USAGE will help diagnose the cause.