The 22-year-old San Diego native sued the pageant in August on allegations of libel, slander and religious discrimination. The pageant then countersued Prejean in October, asking to be reimbursed for her breast implants. Prejean was fired in June for allegedly missing scheduled appearances and for showing up at other events that were not approved by pageant officials.
However, Prejean argued that she was dismissed because of remarks she made about gay marriage during the Miss USA pageant in April. When asked her opinion on the issue she responded that she believed marriage should only be between a man and a woman.
"Carrie Prejean, Keith Lewis and K2 Productions have dropped their claim against each other and wish each other the best in their future endeavors," read a joint statement released Tuesday.