The Tolkien Trust and original publishers of the author's Lord Of The Rings novels HarperCollins sued the workshop for £85m in damages, alleging that New Line Cimena had not honoured a previous agreement to share profits made from the films.
Court documents claimed that the film rights to both Lord Of The Rings and The Hobbit were drawn up in 1969 between the parties and studio United Artists in exchange for 7.5% of the gross receipts, which were grandfathered into a deal with New Line Cinema in 1988.
The lawsuit also sought to halt filming on Guillermo del Toro's two-part adaptation of the 1937 prequel about Bilbo Baggins and his quest for treasure.
Financial terms of the settlement were not disclosed, Reuters reports.
However, the author's son Christopher Tolkien issued a statement about the agreement, which read: "New Line may now proceed with its proposed films of The Hobbit."
It was reported earlier that del Toro revealed that he is not planning to utilise 3D technology for the movies.