She filed the lawsuit in April over a March 18 Twitter post in which the drug store chain posted a paparazzi photo of her carrying two Duane Reade bags.
"Love a quick #DuaneReade run? Even @KatieHeigl can't resist shopping #NYC's favorite drugstore," read the caption.
The lawsuit said the use of her image "improperly exploited" her name to promote the store "without authorization."
Reade removed the offending tweet and the lawsuit was dismissed with prejudice, meaning the actress can't later sue over the posts.
"Katherine Heigl and Duane Reade have worked out a mutually beneficial agreement," said Heigl's lawyer, Peter Haviland at Ballard Spahr. "Ms. Heigl has voluntarily dismissed her lawsuit, and Duane Reade has made a contribution to benefit the Jason Debus Heigl Foundation. The parties have agreed to keep the terms of the agreement confidential."