The agreement gives Apple a licence to use a Creative patent in its music player and other products and settles all legal disputes between the two companies.
US-traded shares of Singapore-based Creative increased 37% following the agreement as the company announced it would now be allowed to start making iPod accessories.
Steve Jobs, Apple's chief executive, said the deal ended five lawsuits between the companies "and removes the uncertainty and distraction of prolonged litigation".
Jobs said: "Creative is very fortunate to have been granted this early patent."
Cease and desist
Creative, the world's second-largest maker of MP3 music players, sued Apple in May alleging the California-based computer maker had infringed a patent on its Zen player.
The patent covers the way music tracks are selected on a device using a hierarchy of three or more successive screens.
On the iPod, for instance, users can scroll from artists to albums to songs.
In June Apple counter-sued, while Creative took the case to the US International Trade Commission and sought a permanent cease-and-desist order against Apple.
In one counter-suit, Apple alleged that Creative had infringed at least three of its patents, including one for editing data using a portable media device.
Jobs said the settlement "resolves all of our differences with Creative."
Creative said it would take part in Apple's "Made for iPod" programme and was "very excited about this new market opportunity".