The Toyota owners had gone to court to recover losses they claimed they suffered when they sold or traded in their vehicles when values dropped after widespread reports of sudden, unintended acceleration in 2009 and 2010.
The owners will receive $125 to $10,000, depending on the level of depreciation, The New York Times reported.
The settlement does not cover individual personal-injury and wrongful death lawsuits still pending against the Japanese automaker, the newspaper said.
"This agreement allows us to resolve a legacy legal issue in a way that provides significant value to our customers and demonstrates that they can depend on Toyota to stand behind our vehicles," said Celeste Migliore, National Business and Field Communications manager for Toyota Motor Sales, U.S.A. Inc.
The settlement is "extraordinary because every single dollar in the cash fund will go to claimants," U.S. District Judge James Selna said in a statement.
A decision posted to the court's website calls the settlement "fair, adequate and reasonable," the Times said.
Plaintiffs attorney Steve Berman called the settlement "a significant financial recovery."
"This is a great settlement for consumers," he said in a statement. "It includes both safety fixes to make Toyota vehicles safer as well as monetary relief for owners who saw a reduction in their vehicle's value."
Toyota will be required to install safety upgrades in about 3.2 million vehicles and create two funds of $250 million to compensate owners ineligible for safety upgrades and those who sold their cars between Sept. 1, 2009, and Dec. 31, 2010, at a loss.
The sudden acceleration problems led to the recall of more than 11 million vehicles.
CNN absent from the Dish Network lineup
Tesla could face sales ban in Michigan