The newspaper had reported allegations that Melania Trump once worked as an , but later retracted the claims.
The story was published during the US election campaign last year.
Mrs Trump accepted damages and an apology from the newspaper at London’s High Court.
The article was published by the Daily Mail newspaper, and subsequently the paper’s digital operation Mail Online.
In a statement, Mrs Trump’s lawyer said that she is "very pleased" and "will remain vigilant to protect her good name and reputation from those who make false and defamatory statements about her".
Mrs Trump filed a lawsuit against the Daily Mail in the UK, and filed against Mail Online in the US.
The payout settles the case both in New York and the UK, despite London’s High Court having no jurisdiction in the US.
The US suit, filed last year, sought damages of $150m (120m pounds). The amount accepted by Mrs Trump in London was not disclosed in court.
However, reports suggest the payout was closer to $3m, including legal costs and damages.
In its apology, the Daily Mail acknowledged it had published "allegations that she provided services beyond simply modelling".
The article also claimed that Mr and Mrs Trump may have met three years before they actually did, and later "staged" their first meeting.
"We accept that these allegations about Mrs Trump are not true," the newspaper said.
A lawyer for Mrs Trump told the London court the allegations "strike at the heart of the claimant’s personal integrity and dignity".
Her lawyer said the double-page spread in August last year, titled "Racy photos and troubling questions about his wife’s past that could derail Trump", featured an old nude photo of Mrs Trump from her modelling career.
"Readers of the newspaper that day could not fail to miss the article," he said.