The students had been suspended from Scripps Ranch High School for their participation. Their parents challenged the punishment, arguing with support from the American Civil Liberties Union that it was excessive and would hurt the students' chances of college admission.
The students involved included 28 girls and three boys. Former San Diego Superintendent Bill Kowba in a May memo described the video as showing the students "gyrating against a wall while standing on their hands" to music he called "twerking."
Some of the families filed lawsuits over the suspensions. The new superintendent, Cindy Martens, announced this week that all references to the "twerking" video and the suspensions would be taken out of transcripts, the Los Angeles Times reported Saturday.
"After further review, a mutual agreement has been reached that is in the best interest of the students and the district," a spokeswoman said. "The parents, students, school and district are ready to move beyond this incident and focus on the upcoming school year."