The fire, which killed 119 people, was the biggest in a series of blazes that tore through the southern state of Victoria in 2009, leaving 173 people dead and destroying more than 2,000 homes in just over a day.
More than 5,000 people joined the class action against electricity provider SP AusNet, arguing the firm was negligent because it had not maintained its power lines, which caused the fire.
The group also sued Utility Services Corporation, which SP AusNet hired to maintain the lines, and the Victoria state government.
The defendants have now agreed to pay a total of almost A$500m.
Lawyer Andrew Watson, who represents the plaintiffs, said the settlement still needed final court approval and it would then take 12 to 18 months to distribute the payouts.
He said: "No amount of money will ever compensate those who were affected by the fire for the losses they have suffered.
"But this settlement of nearly A$500m represents a measure of justice and some real compensation that will ease the financial burden of their suffering."
SP AusNet said it had agreed to the settlement but had not admitted liability.
The company said the conductor that broke and sparked the fire had been damaged by lightning.
Lead plaintiff Carol Matthews said: "It has been a tough, gruelling five years since the fire killed our son, left our daughter without her big brother and destroyed our home.
"There is so much pain that is still very real, but today there is also a sense of justice."
The blaze caused an estimated A$1 billion worth of damage and was part of a series of fires which became known as Black Saturday.
The settlement was reached after a 16-month trial in the Victoria Supreme Court.