The Calleguas Municipal Water District in Ventura County sued the "Magnum, P.I." star, alleging that a tanker truck filled up at the hydrant and took it to Selleck's 60-acre ranch more than a dozen times in the past two years.
The district announced a tentative settlement with Selleck on Thursday.
Jay Spurgin, public works director for Thousand Oaks, said a construction company paid a fee to secure the rights to draw water from the city hydrant two years ago. About 1.4 million gallons of water were taken from the hydrant during that period.
"There was water used during that time, and it was paid for," he said.
Construction firms and contractors can obtain special meters that allow them to haul water from hydrants for large projects. Companies can draw as much water as they need or sell it to a third party as long as they pay the monthly service charge and water bill, Spurgin said.
The water meter in question was removed in June.
It's unclear if Selleck or his employees bought the water from the company or another source. A representative for Selleck didn't immediately return a request for comment on Friday.
The water district said it spent nearly $22,000 for a private detective to investigate.
District officials declined to provide details of the tentative settlement, which has to be approved by the water board next week.
California is grappling with a persistent drought, and the community where Selleck has his land is under mandatory cutbacks as high as 36 per cent