The BBC has agreed to pay Mark Killick a "significant sum in damages and costs" and apologised unreservedly for "defamatory statements" made about him following Martin Bashir’s interview with Diana, Princess of Wales.
Mr Killick worked on the investigative journalism series at the time the 1995 interview was illicitly obtained and first alerted the BBC to the existence of the forged bank statements used to entice Diana.
After blowing the whistle, Mr Killick previously told the PA news agency he was sacked from the programme due to "disloyalty" and then smeared by the broadcaster.
In a statement, the BBC said on Tuesday: "Following publication of the Dyson Report last year, the BBC and former BBC Panorama senior reporter and producer Mark Killick today announce that a settlement has been reached between them.
"The BBC apologises unreservedly for defamatory statements made of Mr Killick in 1996 in internal BBC documents during the Corporation’s investigations into events surrounding the interview with Britain's Princess Diana.
"Mr Killick acted entirely properly in referring his concerns about Martin Bashir’s interview with Diana, Princess of Wales to senior management.
"The BBC has agreed to pay Mr Killick a significant sum in damages and costs, and we wish him all the best for the future."
Lord Dyson, a former master of the rolls and head of civil justice, was appointed to look into the circumstances surrounding the explosive 1995 interview, which famously featured Diana saying: "Well, there were three of us in this marriage, so it was a bit crowded."
The investigation was launched after Earl Spencer alleged that Bashir showed him fake financial documents.
The inquiry found that the BBC covered up "deceitful behaviour" used by Bashir to secure his headline-making world exclusive interview with Diana, and "fell short of high standards of integrity and transparency".
The 1995 interview was watched by 23 million people in the UK and won Bashir a Bafta in 1996.
After Lord Dyson’s report was published, Bashir apologised, adding that it was "a stupid thing to do" but he will "always remain immensely proud of that interview".
Mr Killick is now creative director at Media Zoo as well as running his own independent Television Production and Public Relations company.