The claim filed on behalf of BobbyLee Worm of Saskatchewan alleged she was segregated for up to 23 hours a day at the Fraser Valley Institution for Women east of Vancouver.
It said Worm, who was serving a six-year-sentence for robbery and other offences, was treated illegally and inhumanely.
The settlement's terms do not allow Worm, who is 26, to disclose details.
A spokeswoman for the civil liberties group says the lawsuit helped draw attention to what she called the unconstitutional practice of long-term solitary confinement.
The group says Correctional Services of Canada announced after the lawsuit was filed that it would end the protocol used to put Worm in solitary.