The publishers of Star said it "did not intend to suggest that Ms. Holmes was a drug addict or was undergoing treatment for drug addiction" in an apology published in the May 9 issue.
Holmes' publicist, Ina Treciokas, said that American Media Inc. gave a sizable donation to Dizzy Feet Foundation, an organization that brings dance to underprivileged children.
The 32-year-old actress filed a $50 million lawsuit last month after Star published a magazine cover with the headline "Katie DRUG SHOCKER!" Her attorney says the headline was untrue, unethical, unlawful and not supported by the actual story inside the magazine.
The cover featured a disheveled picture of Holmes, and the story itself claimed she was "trapped in a cycle of addictive treatments," based on interviews with former Scientology members.
Financial terms of the settlement were not disclosed.
The Associated Press contributed to this report.