Court papers filed on Wednesday do not reveal the settlement amount, but a person familiar with the matter, who spoke to The Associated Press on condition of anonymity, confirmed the total.
The settlement resolves a 2023 lawsuit in which Flynn sought at least $US50 million and asserted the criminal case against him amounted to a malicious prosecution.
It also represents a stark turnabout in position for a Justice Department that during the Biden administration had pressed a judge to dismiss the complaint.
Attorney General Pam Bondi, a former personal lawyer for the president, has been a vocal critic of the Russia investigation in which Flynn was charged.
The Justice Department cast the settlement as an "important step in redressing" what it says was a "historic injustice" of the Russia investigation that shadowed Trump for much of his first term.
"This Department of Justice will continue to pursue accountability at all levels for this wrongdoing. Such weaponisation of the federal government must never be allowed to happen again," a spokesperson said.
The settlement is the latest turn in the long-running legal saga involving Flynn, one of six Trump associates charged as part of special counsel Robert Mueller's investigation into potential ties between Russia and Trump's 2016 presidential campaign.
Flynn pleaded guilty in December 2017 to lying to the FBI when he said he had not discussed with the diplomat, Sergey Kislyak, sanctions that the outgoing Obama administration had just been imposed on Russia for election interference.Â
During that conversation, Flynn advised that Russia be "even-keeled" in response to the punitive measures, and assured him "we can have a better conversation" about relations between the countries after Trump became president.
The conversation alarmed the FBI, which at the time was investigating whether the Trump campaign and Russia had co-ordinated to sway the election.
In addition, White House officials were stating publicly that Flynn and Kislyak had not discussed sanctions, which the FBI knew was untrue.
But Flynn later sought to withdraw his guilty plea, saying federal prosecutors had acted in "bad faith" and broken their end of the bargain when they sought prison time for him.
The Justice Department in 2020 moved to dismiss the case, asserting that the FBI had no basis to interview Flynn about Kislyak and that any statements he made during the interview were not material to the FBI's broader counter-intelligence probe.
The department also pointed to internal FBI notes showing agents had planned to close out the investigation weeks before interviewing Flynn about Kislyak.
Flynn was later pardoned by Trump, ending the court case and the legal wrangling.
