The paper has admitted that it was hoaxed into claiming that she would keep half the proceeds from the auction.
The out of court deal has set the record for damages paid to a member of the Royal Family.
The writ was issued in response to a story headlined "Diana to pocket pounds 1m in her 'charity' dress auction" which appeared in the 23 February edition of the paper and was followed up by an article in the Daily Express.
Express journalists investigating the story believed they had seen genuine documents which detailed the arrangements between the Princess and the auction house Christie's, and that they revealed that only half the proceeds from the sale of almost 100 dresses on 26 June in New York would go directly to good causes. The Express's lawyers also believed them to be genuine.
Today's Express on Sunday carries an apology on its front page. It says: "It is now clear that the documents were forged although we believed they were from a reliable source ... We now accept that the articles were totally false. We unreservedly apologise to Diana, Princess of Wales for the hurt and embarrassment caused and as a mark of this we have agreed to pay a substantial sum by way of compensation and her legal costs."Reuse content