The victims' lawyer Peter Gordon told the Victoria state Supreme Court that the settlement, which is subject to court approval, brought to an end a long battle for compensation. A suit against the drug's German manufacturer Grunenthal Group will be discontinued.
More than 100 Thalidomide victims in Australia and New Zealand will receive compensation once the settlement has been ratified by the court in February, Gordon said.
He said AU$6.5 million in legal costs would be paid by Diageo in addition to the settlement.
The drug was given to pregnant women in the 1950s and 1960s as a treatment for morning sickness, but was yanked from the market in 1961 after it was linked to birth defects. It led to deformities in thousands of babies.
Last year, Diageo settled with the lead litigant in the class action, Lynette Rowe, a 50-year-old Australian woman born without arms and legs after her pregnant mother took Thalidomide. The amount was not disclosed.
Rowe was among several Thalidomide victims who attended court on Monday to hear the announcement.
Thalidomide lawsuits have been filed across the world over the years. In 2010, the British government officially apologized to people hurt by the drug, after earlier agreeing to pay 20 million pounds ($31 million) to Thalidomide's victims.
A Spanish court last month ordered Gruenenthal to pay compensation to 22 Spaniards born with disabilities after their mothers used Thalidomide decades ago.
Madrid's provincial court ordered the company to pay 20,000 euros ($26,300) for each percentage point of disability a victim had, as recognized by Spain's Health Ministry.Suggest a correction