confidential agreement late Wednesday.
Arthur was seeking $4 million or his job back after he was fired last month and replaced by former test batsman Darren Lehmann two weeks before the Ashes series.
"For me, this was never solely about the money," said Arthur, a South African who in 2011 became the first foreigner appointed as head coach of the Australian team. "I just wanted to be treated fairly, and with dignity and respect.
"I have significantly reduced my claim, as it is being settled tonight and not dragging on at significant cost."
The contents of Arthur's legal action caused a stir in Australia when it was leaked in the domestic media just before the second Ashes test in England, including claims of serious divisions in the national team, particularly between captain Michael Clarke and former vice-captain Shane Watson.
He said at the time that he tried to avoid "collateral damage" to the Australian cricket team when he launched legal action and claimed he became the victim of a "deliberate campaign" to taint his reputation.
After the settlement on Wednesday, Arthur said: "I have been very mindful of protecting the Australian cricket team from any further publicity surrounding this dispute. With this fair and reasonable deal, we can all now get on with our lives."
Cricket Australia said in a statement that both sides "agree that a resolution now is in the interests of the Australian cricket team and cricket generally in Australia."
"Cricket Australia appreciates the efforts that Mickey applied to his coaching role, and wishes him the very best in his future career," the statement said.
Arthur had a successful stint as South Africa coach before moving to Australia to coach the Western Australia state team in the domestic competition. He was appointed coach in 2011 after a wide-ranging review of the national team and its support network. After mixed early results, the Australians slumped to a 4-0 series defeat in India amid reports of in-fighting and poor discipline.
After his legal claim was leaked in the media, Arthur said he'd been left with little choice but to launch action after he was summarily fired part-way through his contract, without any payment or severance deal in writing.
"I was really trying for a private resolution that would not have any collateral damage to the reputation of any of us, the Australian team, Australian cricket, or me," he said. "I thought, perhaps naively, that under all the circumstances of my dismissal, that Cricket Australia would be willing to have sensible and good faith talks in private."
Arthur said Cricket Australia chief executive James Sutherland had acknowledged that he was, to some extent, a scapegoat for Australia's recent poor form.
"I find that a totally unfair basis to end my career," he said at the time. "The damage to my reputation and career has been immense, which means the chances of me getting a senior job are that much less."
Arthur said he was told that an incident in a Birmingham bar, in which Australian opening batsman David Warner punched England opener Joe Root, was "the last straw" that led to his dismissal.
Australia lost the first two Ashes tests to England to extend its losing sequence to six tests. A loss in the third test starting Thursday in Manchester would equal Australia's worst losing streak ever in test cricket.