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The case emerged in October last year when Sarah Tither-Kaplan and Toni Gaal - who had been students of Franco's at the Studio 4 Film School - alleged that they were the victims of fraud.
Their lawsuit stated that Franco and his partners had 'engaged in widespread inappropriate and sexually charged behaviour towards female students by sexualizing their power as a teacher and an employer by dangling the opportunity for roles in their projects'.
Franco's legal representatives responded to the claims at the time, calling them 'false and inflammatory'.
If a judge signs off on the settlement, all parties will release a joint statement in which Franco would continue to deny the allegations.
The reported settlement states: "While Defendants continue to deny the allegations in the Complaint, they acknowledge that Plaintiffs have raised important issues; and all parties strongly believe that now is a critical time to focus on addressing the mistreatment of women in Hollywood,
"All agree on the need to make sure that no one in the entertainment industry - regardless of race, religion, disability, ethnicity, background, gender or sexual orientation - faces discrimination, harassment or prejudice of any kind."
Tither-Kaplan came forward with her claims of sexual misconduct against Franco alongside several other women in an interview with the Los Angeles Times after Franco won a Golden Globe award for his role in The Disaster Artist.
Back in May, Seth Rogen said that he had no plans to consider working together with the 43-year-old in the future, potentially ending a long history of collaborations on films such as The Disaster Artist, Pineapple Express, and This is the End.
Rogen told The Sunday Times' Culture magazine: "What I can say is that I despise abuse and harassment and I would never cover or conceal the actions of someone doing it, or knowingly put someone in a situation where they were around someone like that."
Although the #MeToo movement has gained significant traction in Hollywood in recent years, class action cases such as the one against Franco have been rare.
According to THR, Tither-Kaplan will receive $670,500 - minus $223,500 in lawyers' fees - whilst Gaal will receive $223,500 less $74,500 in legal fees.
The remaining money will be split amongst the other students, as well as the lawyers.
Franco has reportedly agreed to 'non-economic terms' as well, but they are subject to a pending motion to seal.