Lambert and Norwich were both suing each other for breach of contract and the issue was due to go before a Premier League tribunal next month, but has now been resolved.
The two clubs issued a statement on Sunday evening which read: "Paul Lambert, Norwich City and Aston Villa have agreed settlement in respect of the dispute regarding Paul Lambert's departure from Norwich City."
The statement continued: "Villa will pay Norwich City the original amount as agreed in the contract between Paul Lambert and Norwich City, and Norwich City will pay Paul Lambert the bonus he was entitled to after completion of the 2011/12 season.
"This represents a final settlement of all claims and disputes between the parties. No further comment will be made."
The Scot left Norwich in the summer after three successful years in which he led the Canaries to successive promotions and 12th place in the Barclays Premier League.
Lambert has always believed he did nothing wrong in the sense he was entitled to talk to any interested clubs.
Villa were also adamant that they acted in a proper manner and would have met the terms of Lambert's contract.
Lambert had been upset when Norwich chairman Alan Bowkett made the dispute public at a fans' forum earlier this season and claimed he had left all of his previous clubs in a similar manner.
But Lambert said before the recent Capital One Cup quarter-final between the clubs that he hoped agreement could be reached in the dispute and that has now happened.
Source: PA
Source: PA