David Michael, from Great Bernera off the west coast of the Isle of Lewis, accepted the payment from Western Isles Council.
It was made after he claimed he was victimised on the grounds of religion in the way officials dealt with his complaint.
The row started in 2008 when Mr Michael raised concerns about religious elements in lessons on Nelson Mandela and Martin Luther King at Bernera Primary School, where his son was a pupil.
He was also concerned about a proposed trip to a Bible exhibition.
In a subsequent letter from Kirsteen Maclean, the school’s headteacher, he was told that removing his son, Anton, from religious education would have wider implications.
“Withdrawal from RE would also include him being withdrawn from all school assembly occasions and Christmas activities,” she said.
After lengthy discussions with the local authority – and subsequent legal action on the way his complaints were handled – the council has agreed to pay Mr Michael £1000 compensation and costs of more than £1400.
The out-of-court settlement means no ruling has been made in the case and therefore no liability has been accepted by the local authority.
It is believed to be the first case of its kind in Scotland.
Mr Michael intends to donate the compensation money to the school.
He said he welcomed the settlement.
“We had concerns over the religious overtone to lessons that we felt was inappropriate given our own views,” he said.
“The school has now accepted it needs to be more flexible over the way it deals with this issue.”
Mr Michael was also angered by the attitude of local authority officials who dealt with his complaint.
“In my view, the department has serious organisational culture problems and I call upon the director to address these urgently,” he added.
Iain Nisbet, head of education law at Govan Law Centre, which took the case with support from the Equality and Human Rights Commission in Scotland, welcomed the outcome.
“This is a tremendously important case,” he said.
“Not only is it the first time a religion and belief discrimination case has been brought to court in relation to a pupil’s education, it underlines the breadth of anti-discrimination duties which schools now have to comply with.”
However, the council refuted any suggestion of discrimination and said that the action of the parent had been “unreasonable”.
“The school was flexible with how it dealt with this issue throughout, but what we were adamant we would not do was change the curriculum on the basis of one parent’s views,” said a spokesman.
“The parent did not want to have his child removed from religious education.
“He wanted to change the curriculum specifically in relation to the importance of faith to public figures such as Nelson Mandela and Martin Luther King, and we argue that was unreasonable.
“We agreed to settle the court action by this parent on purely economic grounds.”
He said that the cost to the taxpayer of having a civil hearing in court would be far in excess of the cost of settling the action.