Alexis Vadeboncoeur had threatened to sue the town and four police officers for $2.3 million after the arrest in February 2013.
Yvan Toutant, a spokesman for the town, says the municipal government sought to work out a deal to avoid a lengthy and expensive court case.
It settled with Vadeboncoeur for $25,000.
Toutant added that the city has not admitted any responsibility in the case.
Vadeboncoeur was intercepted by several police officers after a break-in at a Trois-Rivieres pharmacy.
The incident made headlines after security video of the arrest showed Vadeboncoeur being kicked and punched by officers several times after he surrendered and lay spread-eagled on the ground.
A gun was also aimed at his head as he was roughed up.
Police reported the suspect had resisted arrest.
Four police officers were charged with assault causing bodily harm, negligent use of a firearm and obstruction of justice.
Toutant said the city had deplored Vadeboncoeur's treatment by officers right from the start.
"We acted immediately by suspending the four officers with pay," he said. Two were part-time employees and were eventually fired.
"If the remaining officers are convicted, they will also be fired."
Vadeboncoeur's case was nearly derailed because his lawyer had missed a filing deadline for a key component. However, Toutant said Monday the city realized he could re-file the case and the result would be the same.
"It was to save costs, lawyers' fees," said Toutant, explaining that the process for a civil suit can take a long time to resolve.
"It was believed this could cost more than $100,000," he said. "We preferred to put a lid on it."
While the city did not admit responsibility, Toutant acknowledged the images on the video "speak loudly."
"However, we are frustrated to have to make out a $25,000 cheque to someone who committed an armed robbery."
The civil suit against the police officers will continue.
Vadeboncoeur pleaded guilty in the robbery and several other charges. He was sentenced to 54 months.
His lawyer, Rene Duval, was unavailable for comment on the settlement.