A source close to the court case said on Thursday that Random House, a unit of German media conglomerate Bertelsmann AG, and Frey have agreed to a settlement to halt growing legal bills and distractions caused by the case.
Both Frey and his publisher have denied any wrongdoing.
The source close to the negotiations asked not to be named because the settlement has still to be approved by a judge at a hearing set for Wednesday next week.
The book outlines Frey's path to recovery from his drug and alcohol addiction.
Many lawsuits were filed against Random House and Frey in January and later consolidated into one case.
The lawsuit claimed the author and publisher marketed the book as a memoir instead of a work of fiction.
The publisher had announced on January 26 that key parts in the book where fabricated by the author and under the new proposed settlement plans - only those who bought the book before the announcement are eligible for some sort of settlement.
The agreement, which has been approved by 10 of the 12 plaintiffs, has also stipulated that Frey and Random House will pay no more than $2.35 million in settlement costs and attorneys' fees, the source said.
Before Frey's revelations of fraud, his book was the biggest selling non-fiction book in the United States in 2005, with more than 1.7 million copies sold in paperback edition.
Frey's book had been chosen by talk show host Oprah Winfrey for her reading club - a move that often transforms books into best sellers.