He dropped the suit "to avoid setting a legal precedent that may have the effect of limiting the public exercise of free speech," Zuma said in a statement issued Sunday.
The suit against Avusa Media, publishers of The Sunday Times, the newspaper's editor at the time, Mondli Makhanya, and editorial cartoonist Jonathan Shapiro, known as "Zapiro," was filed in September 2008 after the newspaper published a Zapiro cartoon in which Zuma was preparing to rape "Lady Liberty," who was being held down by other men.
The cartoon alluded to a 2006 incident in which Zuma was charged with rape by a female acquaintance. He was later acquitted of the charges.
Zuma had initially asked for $575,000 in damages, but dropped the amount to $11,500, about a week ago, the South African Broadcasting Corp. reported.
The president will pay 50 percent of the newspaper's legal fees.
The case was set to go to court Monday.
Shapiro, the cartoonist, told The Sunday Times he felt he could have won the suit.