Flatley, the former star of the Irish dance spectacle Riverdance, has achieved international acclaim with his own shows, Lord of the Dance, Feet of Flames and Celtic Tiger.
He said in a statement issued by his London-based publicist that he had been awarded the damages over malicious claims made against him by Tyna Marie Robertson, a real estate agent.
"I am very pleased with the judgment awarded to me. Ms. Robertson tried to extort money from me by spreading these lies and the court sent a message that it will not tolerate these types of schemes," Flatley said in the statement.
The 49-year-old dancer said he was offered the settlement at a hearing on Friday at California Supreme Court.
Robertson had originally alleged Flatley had raped her in a Las Vegas hotel in 2002 and threatened to file a sexual assault lawsuit unless Flatley agreed to pay a "seven figures" settlement, according to court papers.
Police declined to press criminal charges and Flatley said the sex was consensual.
Robertson then filed a $37 million civil sexual assault lawsuit in Illinois, but it was later dismissed.
Flatley countered with a lawsuit claiming extortion, fraud and defamation.