Lawyers for dioceses of San Diego and San Bernardino and 144 victims of priest abuse thrashed out the 198.1-million-dollar settlement after protracted negotiations at the city's Federal Courthouse.
Each victim of abuse will receive an average of 1.3 million dollars, lawyers said after the announcement, making it one of the largest settlements by the Catholic Church since the sex-abuse scandal erupted in 2002.
"This settlement recognizes the enormous courage of the survivors and all parties hope that this settlement will bring some relief for the pain that the survivors have endured for so long," said Irwin Zalkin, an attorney representing a number of abuse victims.
The exact amount each victim receives will by determined by a court at a later date, a joint statement said.
San Dieog Bishop Robert Brom said he hoped the settlement would give closure to victims.
"The Diocese has always been committed to resolving this litigation in a way that fairly compensates these victims of abuse and would still preserve the ongoing ministries and programs of the Church," Brom said.
"We pray that this settlement will bring some closure and healing to the years of suffering experience by these victims."
The settlement comes after years of negotiations between victims and the Californian city's diocese. In February the church body filed for bankruptcy protection, arguing it was the best way to compensate victims in the case.
The diocese had previously offered to settle the case for 95 million dollars, but eventually agreed to more than twice the amount.
The settlement follows a record payout by the Los Angeles diocese of 660 million dollars to more than 500 victims of abuse by clergy in July, the biggest in US history.
Since the beginning of the abuse scandal five years ago, Catholic authorities have paid out close to 2.8 billion dollars in damages to victims.