McDonald's has dropped legal action against protesters at the building site in Tecoma, east of Melbourne.
Tecoma residents have been protesting against the building of a restaurant since 2011.
McDonald's was seeking damages against eight protesters who were allegedly causing disruptions and blockading the building site.
An agreement was reached between the parties, which is subject to court approval, a spokeswoman from Maurice Blackburn Lawyers confirmed.
Protest group spokesman Garry Muratore says the protesters will continue to protest the site peacefully.
"The greater group are relieved McDonald's have seen sense to drop this legal action," Mr Muratore said.
"It's a weight off the shoulders of the people that were facing big money and it frees the way for us to peacefully and lawfully protest the site."
Mr Muratore says McDonald's has been claiming damages for loss of profits, maintaining security and any penalties it received from builders. "The eight protesters facing legal action ran the risk of losing their houses, there were many sleepless nights," he said.
McDonald's had been trying to get a representation order, which caused unease in the community.
"We are glad they have backed away, I think they went too hard," he said.