The 55-year-old actress was sued by the family of Edenilson Steven Valle, after his body was found at the bottom of her pool following a party thrown by Demi's staff at her Los Angeles home.
Demi - who was not at home at the time of the incident - was accused of being responsible for Valle's death, but the two parties have now reached an agreement.
According to TMZ, court documents read: "Both sides have reached an agreement and asked the court to dismiss the case."
Demi previously revealed that although she was out of Los Angeles when the incident occurred, she was still left in a state of shock.
The Hollywood star - who has daughters Tallulah, 23, Scout, 26, and Rumer, 29, with ex-husband Bruce Willis - said: "I was out of the country travelling to meet my daughters for a birthday celebration when I got this devastating news.
"The loss of a child is an unthinkable tragedy, and my heart goes out to this young man's family and friends."
Initially, the lawsuit was centred on the owners of the property, Tree House Trust, as well as the 'Empire' actress' personal assistant and another unnamed person who was accused of being responsible for the party.
But Demi was subsequently added to the claim, with the 'Ghost' star accused of "failing to place depth markers near what they claim was an excessively deep pool".
Valle's parents, Jorge and Maria, also claimed "rocks by the pool's edge were a tripping hazard, and that alcohol and the pool's dangerously high temperature were factors in his death".
Valle - who is reported to have told other partygoers he could not swim - is said to have tripped and fallen into the pool.
His parents were initially seeking damages of more than $25,000, but it's not clear what the final settlement actually was.