The US Justice Department said the Japanese auto maker admitted to misleading regulators and the public about the safety problems in its cars in 2009 and 2010.
"Rather than promptly disclosing and correcting safety issues about which they were aware, Toyota made misleading public statements to consumers and gave inaccurate facts to members of Congress," said Attorney General Eric Holder.
"When car owners get behind the wheel, they have a right to expect that their vehicle is safe."
Holder warned other car companies to "not repeat Toyota's mistake."
"A recall may damage a company's reputation, but deceiving your customers makes that damage far more lasting," he said.
The Toyota settlement came as General Motors faces investigations for taking more than 10 years to address an ignition problem that is linked to more than 30 crashes and 12 deaths.