The settlement comes as several incidents at U.S. colleges and universities, some involving athletes, have focused attention on the issue of sexual assault on campuses in recent months.
Attorneys for the university and the women said in a joint statement they had been in some form of settlement negotiations since before the lawsuit was first filed in February and the case would be dismissed in light of the agreement.
"We are satisfied that, while universities everywhere struggle with these issues, the University of Tennessee has made significant progress in the way they educate and respond to sexual assault cases," David Randolph Smith, an attorney for the women, said in the statement.
Filed in Nashville federal court by former students, all listed as Jane Does, the lawsuit said the university knew about and condoned a longstanding hostile environment that led to sexual assaults by male football and basketball players.
The lawsuit accuses the university of gender discrimination under the Title IX federal law prohibiting such discrimination in any federally funded education program or activity. It lists incidents dating back two decades in arguing that the Knoxville-based institution gave male athletes deferential treatment.
The suit also alleged the school provided lenient punishments for the perpetrators. The complaint said in four cases, Tennessee's disciplinary process dragged on until the athletes graduated or transferred to other schools.
The University of Tennessee did not admit any guilt or negligence in the settlement and said it has been implementing steps to prevent future assaults from occurring.
"Settling this case was the right thing to do from a compassionate perspective for the young women involved and from a reputation perspective for the institution, regardless of the merits of the case," University of Tennessee Board Vice Chair Raja Jubran said in the statement.
A spokeswoman for the U.S. Department of Education told the local Tennessean newspaper that the withdrawal of a complaint would not necessarily end the department's ongoing Title IX investigation.