The City Council approved the settlement Tuesday.
Dozens of homes -- some of them worth millions -- were damaged in the 2007 landslide and three had to be demolished.
Sixty-five homeowners sued for $100 million. They blamed the slide on city water pipe leaks. The city argued that the Soledad Mountain Road site was unstable. The area had slipped several times in the past.
A judge ruled in the city's favor last week. Under the settlement, the homeowners agreed not to appeal the ruling.