The company will no longer sell bracelets, necklaces and other items that contain the toxic metal.
The agreement covers jewelry sold to children, teens and adults in California, but given the size of the state's market, it becomes company policy nationally.
Under the agreement, starting in January 2012, Tween faces fines if it sells jewelry that is more than 0.03 percent cadmium - a background level that doesn't suggest the cadmium was intentionally added. A state judge still needs to approve the settlement, but that is almost never an issue in these cases.
Last July, the company recalled about 137,000 pieces of jewelry that had been made in China due to unspecified high levels of cadmium.
Cadmium is a soft, whitish metal that, if ingested over time, can damage the kidneys and bones; a large-enough single dose can kill. Cadmium also causes cancer, and some research suggests it can stunt the development of young brains.
The Associated Press contributed to this report.