The settlement, which legal experts said was the largest struck by an American media company, was announced by the two sides and the judge in the case at the 11th hour.
The jury had been selected earlier on Tuesday and the trial was poised for opening statements in Wilmington, Delaware.
Dominion had sought $US1.6 billion ($A2.4 billion) in damages in the lawsuit filed in 2021.
Dominion CEO John Poulos called the settlement "historic".
"Fox has admitted to telling lies about Dominion that caused enormous damage to my company, our employees and our customers," Poulos said in a statement.
"Truthful reporting in the media is essential to our democracy."
At issue in the lawsuit was whether Fox was liable for airing the false claims that Denver-based Dominion's ballot-counting machines were used to manipulate the presidential election in favour of Democrat Joe Biden over then-President Donald Trump, a Republican.
Tuesday's settlement spared Fox the peril of having some of its best-known figures called to the witness stand and subjected to potentially withering questioning, including executives such as Rupert Murdoch, the 92-year-old who serves as Fox Corp chairman, as well as on-air hosts Tucker Carlson, Sean Hannity and Jeanine Pirro.
Fox anchor Neil Cavuto broke into his news show Your World to report the settlement.
A statement by Fox was read on air.
"We are pleased to have reached a settlement of our dispute with Dominion Voting Systems," the statement said.
"We acknowledge the court's rulings finding certain claims about Dominion to be false. This settlement reflects Fox's continued commitment to the highest journalistic standards.
"We are hopeful that our decision to resolve this dispute with Dominion amicably, instead of the acrimony of a divisive trial, allows the country to move forward from these issues."
Fox Corp shares closed up slightly at $US34 ($A51) but were down one per cent in after-hours trading following disclosure of the settlement amount.
Fox has cash to pay for a settlement.
It committed $US3 billion ($A4.5 billion) to buy back shares in the first quarter after revenues beat estimates.
Fox Corp CEO Lachlan Murdoch told Wall Street analysts in February the company had about $US4 billion ($A5.9 billion) cash on hand.
Dominion lawyers declined to answer questions about whether Fox News would apologise publicly or make changes.
Fox News is the most-watched US cable news network.
The settlement of $US787.5 million ($A1.2 billion) is the largest amount of money paid to conclude an American media libel case, Gallatin Advisory principal Richard Tofel said.
The previous highest payment occurred in 2017 when Walt Disney Co paid $US177 million ($A263 million), in addition to insurance recoveries, to settle the "pink slime" defamation case against its ABC network by Beef Products Inc.
Dominion sued Fox Corp and Fox News, contending that its business was ruined by the false vote-rigging claims aired by the news outlet known for its roster of conservative commentators.
The trial was to have tested whether Fox's coverage crossed the line between ethical journalism and the pursuit of ratings, as Dominion alleged and Fox denied.
Fox had portrayed itself in the pretrial skirmishing as a defender of press freedom.
Delaware Superior Court Judge Eric Davis, presiding over the case, had ordered a one-day trial postponement on Monday.
Fox was pursuing settlement talks, two sources familiar with the matter said.
Davis delayed the trial on Tuesday, as the two sides appeared to hammer out the deal in private.
Adding to the legal risks for Fox, another US voting technology company, Smartmatic, is pursuing its own defamation lawsuit seeking $US2.7 billion ($A4.0 billion) in damages in a New York state court.
"For many plaintiffs, a court holding, and admission by the defendant about falsity, are even more important than any actual money damages," University of North Carolina School of Law constitutional law professor Mary-Rose Papandrea said.
