A photo of Tom Cruise's wife Katie Holmes was printed on the cover of the magazine in late February under the headline, 'Addiction nightmare - Katie drug shocker! - The real reason she can't leave Tom'.
The story did not actually allege any drug use by the "Batman Begins" star, but she took issue over the suggestive article and launched legal action, with her representative blasting the publication for making "malicious claims"; that are "untrue, unethical and unlawful".
But the two sides have now reached a settlement. In the latest issue of Star, released on Wednesday, bosses have publicly apologised to Holmes, revealing they are making a big donation to a charity of the actress' choice.
In the statement, editors write, "In a recent issue of Star, we published headlines about Katie Holmes that could be read to suggest that she was addicted to drugs."
"Star did not intend to suggest that Ms. Holmes was a drug addict or was undergoing treatment for drug addiction. Star apologises to Ms. Holmes for any misperception and will be making a substantial donation to charity on Ms. Holmes' behalf for any harm that we may have caused."
And Holmes is happy to put the tabloid mess to rest. She says, "I'm pleased that this lawsuit could be resolved amicably and accept American Media's apology."