The BBC says it has paid a "substantial sum" and apologised to Princess Diana's former private secretary over a bombshell 1995 interview found to have been obtained using deception.
An independent report by senior judge John Dyson last year concluded interviewer Martin Bashir tricked Princess Diana's brother into helping to arrange the interview, in which she spoke candidly about her troubled marriage to Prince Charles.
"The BBC and Commander Patrick Jephson have reached a settlement following publication of the Dyson report," the BBC said in a statement.
Mr Jephson, who aided Princess Diana from 1988 to 1996, reportedly said Mr Bashir "seduced and betrayed" her into agreeing to the interview, which sent shockwaves through the royal family.
BBC journalist Martin Bashir, who interviewed Princess Diana in 1995. Credit: Nick Wass/AP
Judge Dyson concluded that Mr Bashir commissioned fake bank statements that falsely suggested some of Princess Diana's closest aides were being paid by the security services to keep tabs on her.
He then showed them to Charles Spencer in a successful bid to earn their trust and land the sensational sit-down, in which Princess Diana admitted adultery with a former army officer, James Hewitt, and detailed Prince Charles' affair with Camilla Parker Bowles.
"There were three of us in this marriage, so it was a bit crowded," Princess Diana famously told Mr Bashir in the programme, which was watched by a UK audience of nearly 23 million people.
The BBC "apologises unreservedly to Commander Jephson for the harm caused to him", has paid his legal costs and "a substantial sum in damages".
The broadcaster said Commander Jephson intends to donate the damages to charity.
'Woeful incompetence'
The BBC has previously apologised and reached an agreement with a graphic designer who was sidelined for blowing the whistle on the underhand methods used.
Mr Bashir asked Matt Wiessler to mock up documents that were shown to Spencer, who wrote on Twitter on Thursday that the settlement with Mr Jephson was "the right result".
"Appalling what Patrick Jephson had to go through as a result of grotesque 'journalism'," he wrote, condemning the cover-up by senior management at the corporation.
Princess Diana (right) with her private secretary Patrick Jephson At The Burghley Horse Trials Stamford, Lincolnshire, in 1989. Source: Getty / Tim Graham
Questions had long been asked about how Mr Bashir convinced Princess Diana to talk on the flagship "Panorama" programme in November 1995, which won a string of television awards.
Mr Bashir, now 59, was little-known at the time but afterwards enjoyed a high-profile career on US television networks, and interviewed stars such as Michael Jackson.
He returned to work for the corporation as religion editor until he stepped down in May, citing ill health, just hours before Dyson's report was submitted to BBC bosses.
Princess Diana's eldest son Prince William said after the report was published that the interview had made "a major contribution" to the demise of his parents' relationship.
He also accused the BBC of "woeful incompetence" in uncovering the truth, which had "contributed significantly to her fear, paranoia and isolation" in her final years.
In his own release, William's younger brother Harry said the report was "the first step towards justice and truth" but the deceptive practices exposed were still widespread today — and had played a part in his mother's death.
"The ripple effect of a culture of exploitation and unethical practices ultimately took her life," he added.
Mr Bashir apologised to William and Harry but said claims linking his actions to her death were "unreasonable".
