Perry, 27, launched action in the Victorian Supreme Court, claiming her reputation was damaged by the NW article published last April. The story, tagged "world exclusive", alleged Perry was having an affair with her record producer.
It claimed the "intimate relationship" had put Perry's marriage to English actor and comedian Russell Brand in jeopardy. Perry's lawyer, Stuart Gibson, confirmed a confidential settlement had been reached this week with NW's publishers, ACP Magazines.
NW published an article last month titled "We're sorry Katy" and flagged it on the front cover. In her writ, Perry claimed NW showed reckless disregard for the truth and twice refused to apologise or retract the article. The singer rose to fame with I Kissed a Girl in 2008. She married Brand in a traditional Hindu ceremony in India in October 2010, but they have now divorced.