The settlement puts an end to eight years of legal wrangling before the Canadian Human Rights Tribunal.
Medical adjudicators who work for the Canada Pension Plan's disability program want to be paid as health professionals and not as administrative staff.
They say the per-person payout is among the largest settlements agreed to by Ottawa, with some long-time employees set to receive up to $250,000 plus interest, compensation for pain and suffering, and extra pension.
Union representatives said the ruling affects up to 1,000 past and present nurses.
Ruth Walden, the medical adjudicator who led the human rights challenge, says the settlement is a compromise, but one that sets an important standard for recognition of the nursing profession.
She filed a gender discrimination complaint in 2004 with the Canadian Human Rights Commission, saying that the mainly female adjudicators at the CPP disability program were performing the same job as the mainly male medical advisers, but were paid far less.
Her complaint was eventually joined by more than 200 other nurses.
"Of course this settlement is a compromise because it does not provide us with full compensation for our losses," she told a news conference.
But the agreement is still a "huge victory" for gender equality, she added.
"We're very happy that our efforts got us the recognition that we knew we deserved as medical professionals," she said.
The Canadian Human Rights Commission was also thrilled with the outcome.
"It demonstrates that the Canadian Human Rights Act remains a powerful tool to achieve major systemic change for women in Canada," acting chief commissioner David Langtry said in an emailed statement.
A spokeswoman for Treasury Board President Tony Clement said the government was "satisfied" with the ruling. She brushed off suggestions from the union that Ottawa had dragged out the process unnecessarily.
"The Government of Canada is satisfied that a settlement has been reached," said Andrea Mandell-Campbell.
"In terms of the timing, the complaint followed a judicial process that was based on findings and direction of the courts."