The two sides agreed on the deal last year subject to court approval. U.S. District Judge Emmet Sullivan approved the terms Thursday.
Individuals who can prove discrimination could receive up to $250,000 from the government. The agreement also includes $80 million in farm debt forgiveness for the Indian plaintiffs and a series of initiatives to try and alleviate racism against American Indians and other minorities in rural farm loan offices.
The lawsuit, named after George and Marilyn Keepseagle of Fort Yates, N.D., was filed in 1999 and contends Indian farmers and ranchers lost hundreds of millions of dollars over several decades because they were denied USDA loans that instead went to their white neighbors. The government settled a similar lawsuit filed by black farmers more than a decade ago and has offered to settle other suits brought against USDA by Hispanic and women farmers.
President Barack Obama said the settlement was "yet another important step forward in addressing an unfortunate chapter in USDA's civil rights history."
Obama praised the roles played by Agriculture Secretary Tom Vilsack and Attorney General Eric Holder in reaching the settlement.
"Today's approval of the settlement will help strengthen our nation to nation relationship with Indian Country and reinforce the idea that all citizens have a right to be treated fairly by their government," Obama said.
Due to the terms of the settlement, the American Indian money would not need legislative action to be awarded. Farmers will have until December to file their claims.
"This settlement will help thousands of Native Americans who are still farming and ranching," said Porter Holder of Soper, Okla., a named plaintiff in the suit. "The USDA has some terrific programs, but Native Americans must have equal access to them."
Agriculture Secretary Vilsack said his department is working on improving its civil rights record.
"We are committed to changing the culture that made this settlement necessary, and we believe we are well on the way to doing just that," he said.