Craig has alleged the neighbor grabbed and choked her young son after seeing him litter. Craig and the neighbor both called police.
Video of the arrests, which was posted on Facebook and viewed more than a million times, raised accusations of racism.
Mayor Pro Tem Gyna Bivens told the newspaper she was glad the lawsuit was settled.
“This put a big weight on her. It put a big weight on the city, and I hope the settlement is enough for everyone to feel refreshed and ready to move forward,” Bivens said.