Ramsay quit Jane Got a Gun in March last year, reportedly after becoming frustrated over delays and control of the production's final cut.
However, the Scottish film-maker and the producers of the Western, which stars Natalie Portman, have reached a mutually satisfactory agreement and the legal case has been dropped, according to a statement yesterday.
The statement, published on the Screen Daily website, read: "Jane Got a Gun Production LLC and Lynne Ramsay announce the pending civil action and all other disputes between the parties associated with Jane Got a Gun Motion Picture have been resolved privately and to their mutual satisfaction."
Ramsay had previously denied report she was being sued. It was not revealed whether the resolution involved a financial settlement.
The film had been embroiled in difficulties even before Ramsay's departure, with wrangling between star Portman, Ramsay and producer Scott Steindorff over who should replace Michael Fassbender after delays forced actors to pull out due to other commitments. It was plunged into chaos again when both Jude Law and Bradley Cooper also abandoned the project shortly after Ramsay.
The film will now be directed by Gavin O'Connor, with a cast including Ewan McGregor and Joel Edgerton.
At the time, the Hollywood Reporter claimed Ramsay had become exasperated over the lack of an approved schedule, script or budget days before shooting was set to begin.
In November, court papers emerged in which it was claimed Ramsay "was repeatedly under the influence of alcohol, was abusive to members of the cast and crew and was generally disruptive".
Ramsay later issued a statement saying she had not been served with that particular lawsuit.
"The allegations as recently reported are simply false," the statement added.